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2024
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[2024] ZALCJHB 52
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Adviceworx (Pty) Ltd and Another v Roux and Others (J1402-23) [2024] ZALCJHB 52 (23 February 2024)
THE LABOUR COURT OF
SOUTH AFRICA, JOHANNESBURG
REPORTABLE
Case no. J 1402 / 23
In the matter between:
ADVICEWORX (PTY) LTD
First Applicant
ADVICEWORX ADVISERY
(PTY) LTD
Second Applicant
And
KIRSTEN ANDREW ROUX
First Respondent
RUI ALEXANDRE SANTOS
DA COSTA
Second Respondent
WILLEM PETRUS
MAASS
Third Respondent
HANNES VAN
HUYSSTEEN
Fourth Respondent
JACOBUS FREDERICK VAN
DEN BERG
Fifth Respondent
SEAN MARK
FIELD
Sixth Respondent
SVEN ULF
WILSON
Seventh Respondent
LYNDA JANE
WOODHEAD
Eighth Respondent
JASON
HILL
Ninth Respondent
CHRISTOPHER JOHN
OSMOND
Tenth Respondent
WEALTH ASSOCIATES
SOUTH AFRICA (PTY) LTD
Eleventh Respondent
WEALTH ASSOCIATES
CENTRAL (PTY) LTD
Twelfth Respondent
CARMEL WEALTH (PTY)
LTD
Thirteenth Respondent
THE TRUSTEES OF THE
KANGA TRUST
Fourteenth Respondent
Heard:
16
February
2024
Delivered:
23
February 2024
T
his
judgment was handed down electronically by circulation to the parties
and legal representatives by email. The date and time
for hand-down
is deemed to be 23 February 2024
Summary:
Restraint of trade – principles stated – application
of principles to matter – issue of protectable interest and
infringement of such interest considered
Restraint of trade –
protectable interest in the form of trade connections and
confidential information considered –
protectable interest
shown – employees acting in breach of such interests –
enforcement justified
Restraint of trade –
breach of restraint – employment of employees with direct
competitor poses risk to employer –
employer not sufficiently
protected by way of relief relating to protection of confidential
information and trade connections –
employment with competitor
prohibited
Unlawful competition –
principles considered – concerted conduct by employees and
competitor to unlawful compete with
employer – unlawful
appropriation of goodwill of employer – business of employer
used as springboard – relief
of prohibition of any association
between employees and competitor justified
Restraint of trade –
alleged intolerable employment conditions – principles
considered – irrelevant to deciding
whether to enforce
restraint – conditions under which employees left distinct from
restraint enforcement – on the facts
employees in any event
fail to prove intolerable working conditions
Exceptio non
adimpleti contractus
–
principles considered –
employees relying on allegations of reciprocal obligations to excuse
restraint enforcement –
reciprocity not shown – restraint
district and separate from ownership rights – defence of
exceptio
not substantiated
Restraint of trade –
weigh off considered – weigh off favouring employer where it
comes to confidential information
and trade connections – weigh
off favouring enforcement of restraint
Interdict –
requirements of interdict satisfied – interdict granted –
application granted – essential terms
of restraint enforced
JUDGMENT
SNYMAN, AJ
Introduction
[1] Despite
pleadings containing just short of 3 000 pages and a plethora of
points raised between
the parties, what I ultimately have been called
upon to decide in this judgment is nothing else but an application
brought by the
applicants on 6 October 2023 to enforce restraint of
trade covenants and / or confidentiality undertakings against the
first to
tenth respondents, who were all former employees of the
applicants. It was common cause that as of 1 October 2023, the first
to
tenth respondents had left the employ of the applicants and had
all become employed with the eleventh and / or twelfth respondents,
which according to the applicants are direct competitors of the
applicants. In the application, the applicants seek interdicts
against the first to tenth respondents, which included, depending on
what terms were applicable to each of these respondents, to
prevent
them from continuing their employment with the eleventh and twelfth
respondents, soliciting the custom of the applicants’
clients,
soliciting the employment of the applicants’ employees, and /
or from disseminating any of the applicant’s
confidential
information to any third parties. The applicants did not seek relief
against the eleventh, twelfth and thirteenth
respondents
per se
,
and these respondents were joined by the applicants in the
application only on the basis of having an interest in the matter,
considering what is set out above.
[2] The
eleventh and twelfth respondents have however made common cause with
the first to tenth respondents,
and have proceeded to oppose the
applicants’ application on their behalf. In fact, it is Marc Du
Plooy (Du Plooy), the group
managing director and CEO of the eleventh
and twelfth respondents, that deposed to the answering affidavit(s),
with the other individual
respondents filing confirmatory affidavits.
It is thus clear that all the respondents have decided to oppose the
applicants’
application.
[3] The
progressing of this matter has been quite involved. In terms of the
original application bought
by the applicants, the matter was set
down on 10 November 2023. The application came before Govender AJ on
10 November 2023, and
it was postponed to 17 November 2023 subject to
limited non-solicitation conditions relating to clients and employees
of the applicants,
in the interim.
[4] In
the answering affidavit filed by the respondents, one of the issues
that had been raised was
that the employment contracts of the
individual respondents had been brought about as a result of
fraudulent misrepresentation
and material non-disclosure perpetrated
by the applicants. The respondents also contested urgency. These
issues were argued before
Govender AJ on 17 November 2023. The
learned Judge determined (accepted) that the matter was urgent, so
there is no need to consider
the issue of urgency in this judgment as
it has been disposed of.
[5]
As
to the issue of the applicants’ alleged fraudulent
misrepresentation and deliberate non-disclosures as alleged by the
respondents, it was contended that this raised a material factual
dispute between the parties that needed to be referred to oral
evidence. In a judgment handed down on 14 December 2023, Govender AJ
granted an order referring the fraudulent misrepresentation
and
deliberate non-disclosure issue to oral evidence, to be set down for
hearing on 29 January 2024. The learned Judge however
also granted
interim relief which in essence enforced the restraints of trade and
confidentiality undertakings against the individual
respondents
pending the final determination of the matter.
[1]
[6] However,
and in their supplementary affidavit of 19 January 2024, the
respondents abandoned the
issue of the fraudulent misrepresentation
and deliberate non-disclosure raised by them. This effectively
removes the need to continue
with oral evidence in this regard. It
also means that I need not consider the evidence relating to this
particular issue, as contained
in the affidavits of the parties.
[7] Further
affidavits followed. The applicants filed supplementary affidavits on
25 January 2024 and
28 January 2024. The respondents answered these
supplementary affidavits by way of answering affidavit on 1 February
2024. The
applicants replied to this answering affidavit by way of a
replying affidavit filed on 9 February 2024.
[8] The
applicants have also brought a striking out application on 15
November 2023, contending that
some of the material in and content of
the respondents’ answering affidavit, as well as some of the
confirmatory affidavits
to this answering affidavit, are vexatious
and/or irrelevant and/or defamatory and/or otherwise inadmissible.
[9] Pursuant
to all of the aforesaid, the application came before me for argument
on 16 February 2024.
Effectively, the applicants now seek a final
order enforcing the restraints of trade and confidentiality
undertakings against the
individual respondents. After hearing
argument on behalf of the applicants and the respondents, I reserved
judgment, indicating
that written judgment will be handed down on 23
February 2024. This judgment now constitutes my determination of the
application,
commencing with a summary of the relevant background
facts.
The relevant facts
[10]
In
this matter, a substantial volume of evidence has been presented, in
the form of hundreds of pages of affidavits and thousands
of pages of
annexures. But despite this volume of evidence I do not believe the
facts in this case are complicated, and as far
as I am concerned,
what actually happened throughout, and the facts of pertinent
relevance to deciding the application now before
me, is mostly common
cause or undisputed.
[2]
I
therefore do not intend to ventilate in full all of the evidence as
presented by the parties, and will only set out that evidence
presented by the parties which I consider of relevance to deciding
this case.
[11] As
to the application for striking out brought by the applicants, I do
not see any need to decide
the same separately. I have considered all
those paragraphs in the respondents’ answering affidavit and
the confirmatory
affidavits, which the applicants have asked to be
struck out, and the reality simply is that in my view, these facts,
even as they
stand, have little or no relevance in deciding the
current application now before me. I will simply not consider facts I
do not
believe to be relevant, without having to devote separate time
and attention to a striking out application. As stated above, what
is
summarized below is extracted from both parties’ affidavits and
are what I believe to be relevant in this case.
[12] For
ease of reference in this judgment, I will refer to the first and
second applicants jointly
as ‘
ADX
’. I will further
refer to the first to tenth respondents individually by name where
required. Where it comes to collectively
referring to those of the
first to tenth respondents that were employed as financial advisers
by ADX, I will use the reference
‘
FA respondents
’.
The eleventh and twelfth respondents will be referred to jointly as
‘
WA
’, the thirteenth respondent as ‘
Carmel
’,
and the fourteenth respondent ‘
Kanga
’. All the
respondents collectively will be referred to as ‘
the
respondents
’, and the first to tenth respondents
collectively will be referred to as ‘
the individual
respondents
’.
[13] Turning
now to the facts, the business of ADX, in a nutshell, and as relevant
to this application,
is that of wealth management and the provision
of investment advisory services and products, on behalf of clients.
ADX, through
individual wealth and financial advisers / specialists /
planners employed by it, markets and then administers and maintains
investment
portfolios, for and on behalf of individual clients, as
well as providing such clients with financial and investment advice.
ADX
is what is commonly known as a Financial Services Provider (FSP).
According to ADX, what makes its business unique is that its model
places a premium on quality advice outcomes for clients rather than
product or sales-driven models, the latter being the business
model
for most other financial advisory businesses. The majority
shareholder of ADX is Old Mutual Wealth (Pty) Ltd, making it part
of
the Old Mutual Group.
[14] ADX
has a presence in all major urban centres and regions in the Country,
employs 110 dedicated
financial advisers and portfolio managers, in
55 offices in Gauteng, Free State, Eastern Cape, Western Cape,
KwaZulu-Natal and
Mpumalanga. The financial advisers are fully
supported by a number of administrative staff, para planners and
assistants, whom
are also all employed by ADX.
[15] According
to ADX, it has taken it 10 years to build a comprehensive advice
programme and change
management, operational, digital and practice
management capabilities, with the integration of these capabilities
lying at the
heart of its business model. ADX has also concluded in
excess of 50 separate product provider distribution agreements. ADX
has
also adopted a financial adviser acquisition model in terms of
which it recruits financial advisers into its employ and then
acquires
their individual practices (client book) to form part of the
larger ADX business. Nonetheless, ADX still affords these individual
financial advisers so integrated ownership and profit participation.
It also enables these individual advisers to grow their own
practices
as part of the whole business. What this means, as described in the
founding affidavit, is: ‘…
a system of owner managed
practices operating under the umbrella of its professionally managed
advisory capability and FAIS licence
…
’.
[16] When
ADX recruits such a financial adviser into its fold, two agreements
are concluded. This consists
firstly of an employment agreement
containing the core terms of employment and creating the relevant
rights and obligations between
the parties as between employer and
employee. Secondly, an ownership participation agreement is
concluded, which regulates the
relevant terms pertaining to the
acquisition of the practice, and structuring the acquisition and its
terms in a way that recognises
the value that the individual
financial adviser has built up in their practice. It further allows
the financial adviser to in essence
acquire a stake in the business
as a whole and share in overall profits in the form of dividends. The
ownership participation agreement
also provides a mechanism which
enables the financial adviser to buy himself or herself out of the
ADX business should the financial
adviser wish to exit, using a
prescribed agreed formula as a basis to determine the purchase price.
[17] However,
and once the practice is acquired and it and the financial adviser is
incorporated into
the ADX business, ADX then deploys its own unique
integrated operating model into that practice, which includes
providing the financial
adviser with a full-service operating
capability, integrating financial planning capabilities with
operating systems and client
engagement and communication. ADX has an
automated communication framework, designed to provide clients with
relevant and informed
commentary to enable clients to understand and
monitor the management of their own plans and solutions, which is
then used. ADX
also deploys business development capabilities for the
practices, which are housed as a central support capability. It
further
provides training, coaching and development to each
individual integrated practice partner, and has change management
capabilities
and support infrastructure to assist the financial
adviser advisers to change to adopt its business model.
[18] ADX
has partner agreements with a number of other entities within the Old
Mutual Group as well
as third party external research providers which
are made available to the individual financial advisers. A
full-service infrastructure
and support are also made available which
includes fully resourced offices, in-office para-planners,
operational and technology
support, market research, finance,
portfolio managers, business development managers, advice coaches,
national referrals, marketing
functions, administrative support, IT
services, and a web portal for customised client communication
services.
[19] ADX
has created a digitised enablement platform which serves to integrate
the critical aspects
of ADX’s business model into a single
digital interface. This known as the ‘
NAV
’ digital
enablement platform (NAV). NAV is implemented across all practices to
empower financial advisers to navigate its
ecosystem efficiently. NAV
provides all of information, online, and at the financial advisers’
fingertips, regarding their
entire practice, including live
information on all of the outputs of business model, and how it
impacts on each individual practice.
According to ADX, no other
intermediated financial planning business in South Africa is ‘
close
’
to operating such a platform.
[20] It
appears to be common cause that the financial services industry in
which ADX does business
is fiercely competitive. FSPs essentially
offer the same or similar nature of services and / or products, with
the main differences
being either product based financial planning,
client relationships and / or quality advice provided. According to
ADX, it has
invested considerable time, effort and resources to build
systems and processes, to develop people and intellectual property in
terms of which recruited advisers become part of the ADX model,
ultimately to provide clients with the best financial advice, matched
up to the client's needs, and this is what had given it the
competitive edge. The success and reputation of ADX is to a large
extent founded on the upskilling and provision of intellectual
property to its employees so that they become trusted and skilled
financial advisers, and in turn so that it becomes a trusted advisory
services provider. According to ADX, none of this is in the
public
domain, and effectively involves an investment of three to four years
in a recruited financial adviser. There is also a
substantial
financial cost to ADX associated with this.
[21] In
the answering affidavit, the respondents do not really dispute ADX’s
business model,
what it entails, and how it operates and is
conducted, as summarized above. But what the respondents say is that
there is nothing
proprietary in it. It is stated that NAV is simply
an internal dashboard reflecting performance of advisers, and of
little use
to other FSPs. According to the respondents, ADX
principally relies on tools and systems like the xPlan which is a
widely used
off-the-shelf solution within the financial advisory /
service industry, and that WA used this very same xPlan for five
years to
develop its own bespoke client management and reporting
system whereafter it discontinued using xPlan. It is further said
that
ADX employs Old Mutual's integrated financial needs analysis and
financial planning system, which system can be adapted for use
by
other FSPs, and therefore its core methodology is not proprietary. In
general, and according to the respondents, all ADX’s
processes
set out in its founding affidavit simply align with standard industry
practices, uses commonly available tools, and therefore
there exists
no proprietary elements or innovative processes that set it apart. WA
has stated that it has its own client management
system and platform,
and had no interest in the ADX NAV system, which it in any event
cannot use.
[22] What
was however undisputed is that despite the different kinds of client
management platforms
that may be used by either ADX or WA, these
platforms would contain comprehensive client information, which would
be highly valuable
to any competitor and would be extremely sensitive
and confidential.
[23] Turning
then to WA itself, it was established in 2005 and is a client-facing
financial advisory
and wealth management business. Its current group
managing director and CEO is Du Plooy. WA markets its business and
its competitive
edge in a manner similar to ADX. It offers the same
kind of products and services, also by way of dedicated financial
advisers.
WA however contends that there are key differences between
its business and that of ADX. Firstly, ADX is owned by Old Mutual,
and
is thus influenced by Old Mutual's strategic goals and product
offerings. WA, on the other hand, is privately owned, for the want
of
a better description, and therefore has far more independence in its
business operations. Next, it is said that ADX is focused
on growing
assets under management (AUM) as a primary measure of success, as
opposed to WA, which emphasizes providing holistic
financial
planning, or in other words, WA does not impose compulsion or
incentives to prioritize specific product providers as
ADX does. WA
offers what it calls a ‘
comprehensive suite
’ of
services, including investment products, short-term and long-term
risk products, and inhouse fiduciary services, such
as trust
management and estate planning assistance, which is beyond the more
focussed services of ADX. According to WA, it has
developed its own
internal business tools, and would have no use for, and would not
find any value in, the business tools of ADX.
And finally, the
shareholding structure offered by WA to its financial advisers
differ, because ADX offers Class C Shares (being
redeemable
preference shares) to its financial advisers, whilst WA offers
ordinary shares in the capital of the company itself.
And needless to
say, WA is of the view that its cultural values and behaviours differ
from that of ADX.
[24] WA
is a wholly owned subsidiary of Carmel. Ryno De Kock (De Kock) is the
Group Chief Executive
Officer and co-founder of Carmel, and is a
former executive of ADX that left ADX’s employment pursuant to
an agreement concluded
on 18 May 2020. There is currently still
litigation between ADX and De Kock. Carmel is funded by private
equity investors and commenced
business in April 2023. The first
acquisition made by Carmel was WA. Importantly, and according to De
Kock, the FA respondents
that joined WA from ADX, as will be dealt
with below, are estimated to manage approximately R2.5 billion in
portfolio values for
clients. De Kock states that Carmel is focused
on acquiring financial advisers and firms. De Kock also concedes that
be was familiar
and / or had prior relationships with most of the FA
advisers that joined WA from ADX.
[25]
There
can be little doubt that ADX, WA and Carmel are direct competitors in
the financial services industry, in all material respects.
At its
core, they are competing FSPs, licenced under the
Financial
Advisory and Intermediary Services Act (FAIS Act)
[3]
.
Even
if it can be said that the operating methodology, systems,
infrastructure and business models of ADX and WA differ, at the
heart
of what these businesses do, and the services they provide, they are
realistically considered the same. In short, they compete
the same
market for the same clients, providing the same kind of core advice,
deploying the same kind of products, principally
by way of
individually employed (or contracted) financial advisers.
[26] Kanga
is a family trust managed by Roux, holds an FSP licence, and trades
under the name ‘
IPMG
’. In Kanga, Roux, Van
Huyssteen, Da Costa and Maass performed financial services for which
ADX was not licenced and did not
perform. Kanga was therefore not in
competition with ADX, and accordingly, it was allowed by ADX that
these respondents could render
such services in Kanga, despite being
employed with ADX. These services were corporate cash management
services for third party
payments, forex services and direct hedge
fund business. It however appears that Kanga has since expanded its
licence to include
the services provided by ADX. Insofar as Kanga
would render these expanded services, it would also be in competition
with ADX.
[27] Turning
then to all of the individual respondents (save for Hill and Osmond),
they were all employed
by ADX pursuant to the business model as
aforesaid, and concluded the written employment and ownership
agreements with ADX. They
were all employed as financial advisers.
Hill was employed as a partnership director and Osmond was employed
as a para-planner,
both in terms of an employment agreement. Roux was
employed on 12 December 2013, Da Costa on 13 December 2013, Maass on
24 June
2014, Van Huyssteen on 24 January 2014, Van den Berg on 30
September 2019 (taking up his employment with effect from 20 February
2020), Field on 7 September 2017 (taking up his employment with
effect from 1 October 2017), Wilson on 25 March 2015 (taking up
his
employment with effect from 1 July 2015), and Woodhead on 15 October
2020 (taking up her employment with effect from 1 November
2020).
Hill was employed on 11 December 2013. And finally, Osmond was
employed on 18 January 2016. Roux, Da Costa, Maass, Van Huyssteen,
Woodhead and Osmond were employed at the offices of ADX in Gqeberha,
Eastern Cape, with Roux in essence functioning as the
de facto
leader of these employees. Field, Van den Berg and Wilson conducted
their business and were employed at the offices of ADX in Cape
Town,
Western Cape, with this area headed up by Hill.
[28] In
the case of Roux, Da Costa, Maass, Van Huyssteen and Hill, who were
employed earlier than the
others, their employment agreements
contained restraints of trade and confidentiality undertakings in
those agreements themselves.
Later on, ADX deemed it appropriate to
rather conclude separate restraint of trade agreements with its
employees, with the confidentiality
undertaking remaining in the
employment agreement itself. In this context, separate restraint of
trade agreements was concluded
with Van den Berg, Field, Wilson and
Woodhead, along with their employment agreements. Osmond did not
conclude a restraint of trade
agreement, and was only subject to the
confidentiality undertaking in his employment agreement.
[29] In
terms of the ADX business model discussed above, ADX entered into
ownership participation agreements
with Roux on 10 May 2017, Da Costa
on 10 May 2017, Maass on 17 July 2017, Van Huyssteen on 9 May 2017,
Van den Berg on 30 September
2019, Field in September 2017, Wilson on
12 April 2017, and Woodhead on 15 October 2020. ADX entered into a
profit participation
and enterprise value agreement with Hill on 5
December 2019.
[30]
The
restraint of trade covenants and confidentiality undertakings
contained in the various employment and / or restraint agreements
referred to above are virtually identical, and I will therefore not
refer to and quote each and every individual contract clause
of each
individual respondent in setting out the facts in this case.
[4]
Where the provisions differ relating to a particular individual
respondent, I will specifically refer to it. In this context, the
restraints of trade read;
‘…
20.2 The
Employee undertakes that neither he nor any business, trade, firm,
undertaking or concern in or by which he is directly
or indirectly
interested or employed will within twelve (12) months after the
Termination Date, directly or indirectly:
20.2.1 encourage or
entice or incite or persuade or induce any employee of the Company to
terminate his employment by the Company;
and/or
20.2.2 furnish any
information or advice to any employee then employed by the Company or
to any prospective employer of such
employee or use any other means
which are directly or indirectly designed, or in the ordinary course
of events calculated, to result
in any such employee terminating his
employment by the Company and/or becoming employed by or directly or
indirectly in any way
interested in or associated with any other
business, trade, firm, undertaking or concern; and/or
20.3 The Employee
undertakes further that neither he nor any business, trade, firm,
undertaking or concern in or by which he is
directly or indirectly
interested or employed will within twelve (12) months after the
Termination Date, directly or indirectly,
persuade, induce, encourage
or procure any Prescribed Client/Customer to terminate his
association or relationship with the Company
and/or to divest any
investments made with or through the Company.
20.4 Without derogating
from the obligations imposed by this clause 20 the Employee
undertakes that neither he nor any business;
trade; firm; undertaking
or concern in or by which he is directly or indirectly interested,
engaged, concerned or employed will
for a period of twelve (12)
months after the Termination Date directly or indirectly, whether as
proprietor, partner, director,
shareholder, employee, consultant,
contractor, financier, agent , representative, assistant or otherwise
in any part of the Territory:
20.4.1 solicit orders
from Prescribed Clients/Customers for any Prescribed Services;
20.4.2 canvass business
in respect of any Prescribed Services from Prescribed
Clients/Customers; and/or
20.4.3 render any
Prescribed Services to any Prescribed Client/Customer. …’
[31] Turning
next to the confidentiality undertaking, all the individual
respondents agreed and undertook
not to use for his / her own benefit
or for the benefit of any other person, or divulge or communicate to
any person or persons,
except to officials of ADX, any of ADX’s
secrets or any other information which he may receive or obtain in
relation to ADX’s
affairs or its clients/customers or to the
details of any specific project undertaken by ADX or to the working
of any process or
invention or to any marketing technique which is
carried on or used by ADX. For the purposes of this undertaking,
‘
secret and confidential information
’ is defined
as any confidential and/or secret information, including but not
limited to information pertaining to clients/customers,
knowhow,
trade secrets, artistic works, designs, drawings, sketches, plans,
technical know-how and data, systems, software, processes,
methods,
client/customer lists and marketing or financial information. The
undertaking is given in perpetuity. Employees are also
required to
return any confidential information in their possession at the time
of leaving ADX, to ADX, and are obliged not to
copy or retain any
such information.
[32]
Upon
becoming employed by ADX, all the FA respondents received what was
called a non-compete and performance incentive consideration
(non-compete payment), or as referred to in this judgment, a
‘
restraint
payment
’.
There is a dispute between the parties as to whether this was in
consideration for the restraint undertakings given by
the individual
respondents, or for some other recruitment / purchase payment. In my
view, however, the restraint / employment agreements
make it clear
what the payments were for. It is specifically recorded that the
payment of the non-compete and performance incentive
consideration
was in consideration for the employee having given the non-compete
undertakings.
[5]
The amount
payable is determined in an annexure to the agreements, which amount
was payable in prescribed instalments. In short,
the payments were
made as a direct result and commensurate to the practice (book)
brought into ADX by the FA respondents, and in
that context,
receiving the payment as a restraint payment relating to such book
makes sense. In this respect, Roux was paid an
amount of R2 250
000, Da Costa an amount of R100 000, Maass an amount of R402 000, Van
Huyssteen an amount of R50 000,
Hill an amount of R725 000, Van
den Berg an amount of R400 000, Field an amount of R500 000, Wilson
an amount of R441 000, and
Woodhead an amount of R367 894.57. Osmond
was not a financial adviser that brought in a client book, and
received no such payment.
[33] As
touched on above, Roux was employed as a financial adviser, however
also had management responsibilities
in respect of the other
financial advisers and staff operating in his practice as part of
ADX’s operations in Gqeberha, and
was the
de facto
team
leader of the Gqeberha office. All the other FA respondents were
employed as financial advisers, with various degrees of experience
and qualifications. They all fulfilled the duties as expected of
financial advisers in the operating and business model of ADX,
and
this included, as discussed, directly advising clients on a variety
of aspects, including products and investments, as well
as building
and maintaining a relationship with them.
[34] Hill,
being appointed as a Partnership Director of the Western Cape, was
responsible for the recruitment
and management of financial advisers,
and was also the regional business head of the financial adviser
business of ADX in the Western
Cape. Hill was instrumental in
building the adviser footprint in the Western Cape. A number of other
regional heads (Coastal Partnership
Directors) in the business
reported to him. In particular, Hill’s duties included the
responsibility to recruit and manage
financial advisers, and
implementing the ADX integrated operating model, change management
programme, and practice management framework.
[35] Osmond,
as para-planner, was inexperienced when joining the business. Roux is
his father-in-law.
He was extensively trained and developed by ADX,
and grew into an experienced and senior para-planner. He developed
strong relationships
with the financial advisers and secured an
extensive knowledge of the endorsed advice model of ADX Osmond was
also later appointed
as a representative, and used this opportunity
to build a client base within ADX.
[36] There
can be little doubt that all the individual respondents had
unfettered access to ADX’s
confidential information during the
currency of their employment. This has been dealt with to some extent
above, but to summarize,
this would include the shared economy model,
the business model, practice management frameworks, measurement and
evaluation tools
and the management programme), and the integrated
operating model underpinned by a technology stack (platform), which
includes
the NAV system. Crucially, it also included all client
information and particulars. None of this information is in the
public domain,
is proprietary, and would only be known by the
individual respondents by virtue of their employment with ADX. The
individual respondents
would also have knowledge of confidential
product provider agreements.
[37] Under
the auspices of being part of ADX, the FA respondents have also been
able to substantially
grow their individual practices. Since
inception and moving his practice into ADX, Roux's practice has shown
an asset growth from
R231 million to R681 million with an increase in
clients from 169 to 324. It was more of the same with the other FA
respondents.
Da Costa's practice had an asset growth from R56 million
to R387 million with an increase in clients from 135 to 304, Maass's
practice
an asset growth from R93 million to R222 million with an
increase in clients from 111 to 233, Huyssteen's practice an asset
growth
from R22 million to R90 million with an increase in clients to
116, Van Den Berg's practice an asset growth from R157 million to
R280 million with an increase in clients from 195 to 356, Field's
practice an asset growth from R179 million to R404 million with
an
increase in clients from 88 to 249, Wilson's practice an asset growth
from R104 million to R163 million with an increase in
clients from 71
to 124, and Woodhead's practice an asset growth from R54 million to
R88 million with an increase in clients from
14 to 25. Hill and
Osmond did not have individual practices. Revenue is earned by the FA
respondents from these practices by way
of what is called recurring
advice fees calculated as a percentage on the asset base of the
practice, which in the case of the
aforesaid FA respondents ranged
between 0.60% and 0.94%.
[38] All
the FA respondents met frequently with their clients, providing
financial advice on an ongoing
basis. Many of these engagements with
clients take place at the offices of the various practices in Cape
Town and Gqeberha, which
offices were well appointed and
well-presented, having been refurbished at the cost of ADX. It was
undisputed that considering
the nature of the financial advisory
relationship and the focus on client centric services specifically
designed to meet the clients’
objectives and goals, the FA
respondents gained and maintained considerable knowledge of each
client's requirements, goals, assets
and other financial information.
In general, a close working relationship and relationship of trust is
developed between the FA
respondents as the financial adviser(s), and
each of their respective client base(s), with the clients more or
less being totally
reliant on the FA respondents as their adviser(s)
to provide quality and professional advice to assist the client(s) in
the management
and investment of their wealth.
[39] In
the answering affidavit, the respondents do not dispute the level of
interaction and relationship
between ADX’s financial advisers
and the clients they serviced, as set out above, other than a bald
assertion that significant
relationships were not established with
clients recruited after they joined ADX because that takes a ‘
long
time
’. But what the respondents do say is that financial
advisers at ADX independently and autonomously acquire and maintain
their
respective client bases, relying on their own efforts,
networks, and methods for client acquisition and maintenance. It is
also
said that in the financial advisory industry, it is common for
clients, especially high-net-worth clients, to maintain relationships
with multiple advisers. The respondents also contend that the
procedures, practices and software planning tools used by ADX in
the
context of client acquisition is based on common industry practice
and are not unique. And finally, the FA respondents point
out that
all of them brought with them to ADX established client bases,
developed independently before their association with ADX.
[40] According
to the respondents, another factor that stands in the way of
successful client solicitation
is that it is difficult and complex to
transition from one product provider to another product provider, and
the procedure involved
to do so is onerous. The financial adviser
must indicate that the transition of any product consisting of a
policy is genuinely
in the best interests of the client, and this
involves significant paperwork.
[41] Turning
now to where the rubber meets the road, on 31 August 2023, 23
employees of ADX resigned,
which included all the individual
respondents. These resignations took place in the Gqeberha and Cape
Town branches, and occurred
without any prior warning. Then, on 5
September 2023 and 29 September 2023, a further three employees
resigned. After intervention
by ADX, five of the employees that
resigned subsequently retracted their resignations. In the end, the
ten individual respondents,
and a portfolio manager, resigned, with
the rest of the resignations being the support staff associated with
practices of the FA
respondents that resigned. Overall, approximately
half of the Gqeberha (Eastern Cape) office and half and Cape Town
Tygerberg (Western
Cape) offices left.
[42] Specifically
turning to the resignations, Roux, Da Costa, Maass, Van Huyssteen,
Van Den Berg,
Field, Wilson, and Woodhead all resigned by way letters
of resignation that are very similar in content, with two groups of
actual
identical resignations, all submitted within hours of each
other on 31 August 2023. On face value, there is little doubt that
this
was a concerted and coordinated act. Their notice period would
expire on 30 September 2023, which is when their employment with
ADX
would terminate. Hill had already resigned on 5 June 2023, but in his
case, he had a three months’ notice period, and
consequently
his employment terminated on 31 August 2023. Osmond also resigned on
31 August 2023 with one months’ notice,
and his employment
accordingly also terminated on 30 September 2023.
[43] According
to the respondents, the simultaneous resignation of the individual
respondents (save
for Hill) was not a collective decision but rather
a series of individual choices by each of them, independently from
the others.
According to the individual respondents, several alleged
factors played a role in the decision to resign, summarized into the
following:
(1) The ongoing investigation by the Financial Sector
Conduct Authority (FSCA) into ADX's adviser acquisition models; (2)
ongoing
violation by ADX of the FAIS Act, where it came to earnings
levied by ADX from clients; (3) ADX's non-compliance with the terms
of ownership participations agreements; and (4) an exposure to a
hostile work environment. Quite some detail has been provided
in the
answering affidavit with regard to all these instances, which I do
not intend to repeat in the same detail in this judgment.
[44] Suffice
it to say, the FSCA Investigation related to ADX adviser acquisition
models, in order
to determine whether these acquisition models adhere
to relevant regulations and ethical standards, which, according to
the respondents,
could lead to fines, penalties, and / or the
revocation of ADX’s FSP license. This, according to the
respondents, in turn
negatively impacted on job security and
tarnished the reputation of financial advisers associated with ADX.
As to earnings levied
from clients, the issue concerned a further
0.15% charge on the assets invested levied by ADX, which was added on
top of the existing
charges that ADX / Old Mutual levied on clients.
The respondents contend that this imposed an unreasonable extra cost
that clients
had to bear for no value to them, and in respect of
which ADX was deducting the fee directly from the advisers'
commissions. Ironically
though, this whole issue of the extra fee
appeared to an issue that had been on the cards for several years.
[45]
Turning
next to the allegation of breach of the ownership participation
agreements, the respondents said that once the financial
adviser has
paid the full ownership participation consideration, ADX must provide
the financial adviser with a share certificate.
The ownership
participation consideration constitutes the fair market value for the
ownership participation right (the share) acquired
and once paid, the
share vests, hence the certificate must be issued. In addition, a
profit pool is determined by ADX, which is
then set aside for
distribution as a dividend on an annual basis, in which all the
financial advisers that have acquired their
shares would share. The
determination of the profit pool and the distribution of such profits
is at the discretion of ADX. Provided
the employee is not a ‘bad
leaver’,
[6]
the share can
be redeemed when the financial adviser leaves. The allegation of the
non-compliance with the ownership participation
agreement concerns
Roux, Da Costa, Maass, Field, Wilson and van Huyssteen, as they had
paid their individual ownership participation
considerations
prescribed by that agreement in full, but they were not issued with a
share certificate for their class C shares
so acquired, did not
receive profits accruing to these shares for the 2021, 2022 and 2023
financial years, and ADX's board has
not determined the profit pool
or the amount of the distributions for 2022 or 2023.
[46] Finally,
the allegation of a hostile working environment related to Ian Melt
Van Schoor (Van Schoor),
the CEO of ADX, whom the respondents accuse
of displaying bullying tactics and being known for vindictive
behaviour, unprofessional
conduct and being disrespectful and hurtful
towards personnel. Even De Kock has weighed in with an exposition of
the kind of bad
person Van Schoor allegedly is. As I have said
already, it is not necessary to go into the detail of any of this,
for the reasons
set out later in this judgment.
[47] In
reply to the allegations made by the respondents, ADX admits there is
an ongoing investigation
by the FSCA as alleged by the respondents,
but points out that no findings have been made against ADX. ADX
contends that it will
be found that it did not contravene any
statutory provisions. According to ADX, the investigation is
confidential and may not be
disclosed to third parties, as in fact
specified by the FSCA itself. This means that the FA respondents may
not disclose the details
of the investigation because of the imposed
confidentiality of it, and for the same reason, ADX may not comment
on it. ADX also
explained that it is statutorily obliged to require
payment by financial advisers for any ownership shares, and
consequently, there
is nothing untoward in the fact that ADX required
payment from the eligible advisers as purchase consideration for the
shares,
with one of the methods of payment being a percentage
deduction from commission income. The qualifying FA respondents
resigned
at the time when the shares were in the process of being
issued.
[48] As
to the allegations of a hostile working environment, ADX disputed the
allegations made about
Van Schoor. Again, I will not address the
details of ADX’s responses to all these allegations. I will
only suffice by referring
to ADX pointing out that Roux, Da Costa,
Maass, Van Huyssteen and Hill were all employed by ADX for more than
nine years. Field,
Wilson and Woodhead were employed for
approximately six, eight and three years respectively. Osmond was
employed for more than
seven years. None of these individuals, over
this fairly lengthy period of employment, ever lodged a formal
grievance about their
working environment. They (save for Hill) in
any event did not even report to Van Schoor, and operated
independently to a large
extent in their own regions. Hill operated
out of Cape Town and did have a direct reporting line to Van Schoor
for some time, but
never expressed having difficulty with the working
relationship. Hill in fact confirmed in an e-mail on 5 June 2023 that
the ADX
executive team had a good working relationship. According to
ADX, the allegations of a hostile working relationship emanate from
De Kock, who did work closely with Van Schoor, and had left ADX in
2020 under unpleasant circumstances with there still being litigation
pending in this respect.
[49] The
respondents dispute that the mass exodus of employees was in any way
facilitated by Roux,
as alleged by ADX. It is stated that Roux had no
relationship with Field and any of the employees from the Cape Town
offices, and
had no personal relationship with Woodhead. According to
Roux, he repeatedly expressed concerns about the current business
structure
of ADX and its impact on the business, and in May 2023 he
informed Van Schoor that if the matter was not resolved by the end of
May 2023, he would have to explore alternative options. Although Van
Schoor committed to finding a solution, when the timeline
for finding
a solution was extended in August 2023 to the next tax year, Roux
believed a resolution would not be forthcoming, and
decided to leave.
Roux concedes that he informed Da Costa and Van Huyssteen
accordingly, as they were part of his team, and they
decided to join
him. The respondents add that Van Huyssteen, of his own accord, was
exploring his own options, but when he learned
Roux was joining WA,
he also decided to join. According to Roux, these were independent
decisions. Where it comes to Field, Wilson,
and van den Berg the Cape
Town office, it is stated that they had previously worked in the same
business as De Kock and had established
a working relationship with
him then. When Field, Wilson, and van den Berg for a variety of
reasons decided to leave ADX, Van der
Berg was mandated to explore
options. This led to De Kock, who referred them to Du Plooy at WA,
and they decided to take up employment
there. It is alleged that this
conduct by Field, Wilson, and van der Berg were entirely independent
from and not shared with the
other individual respondents in the
Gqeberha office, and they only learned of such other resignations
later. Osmond contends that
upon learning of Roux’s decision to
resign (Roux is his father-in-law), and join WA, he decided
independently to follow suit.
And finally, in the case of Woodhead,
it is said that the relationship between her and ADX had broken down,
and because she knew
De Kock beforehand having worked for him before,
she contacted him, and this led to her deciding to join WA.
[50] On
6 September 2023, Van Schoor sent individual letters to each one of
the individual respondents
(excluding Hill), noting their
resignations and reminding them of their restraint and
confidentiality undertakings. Van Schoor
also pointed out to the FA
respondents that in terms of their respective ownership participation
agreements, they had an option
to buy out their respective practices.
Van Schoor attempted to meet with Roux and Da Costa the week of 8
September 2023, but his
meeting requests were rejected. There was no
response by the individual respondents to the letters of 6 September
2023.
[51]
On
15 September 2023, ADX again, this time through its attorneys Webber
Wentzel, offered the FA respondents the opportunity to exercise
the
option to buy out their respective practices.
[7]
On 20 September 2023, individual email responses were received from
Roux, Da Costa, Maass, Van Huyssteen, Van den Berg, Wilson
and
Woodhead, in more or less identical terms, asking for more time and
‘
further
information and/or documentation
’
so that they make ‘
an
informed decision
’
regarding the exercise of their options. There was a question raised
about the initial restraint payment and its calculation.
In addition,
and now for the first time, these identical responses gave identical
reasons (in identical wording) why the FA respondents
had left, being
more or less the same reasons already discussed above.
[52] In
response, and by way of a letter on 22 September 2023, Webber Wentzel
provided what it believed
was the information and documents sought.
It was also indicated in this letter that ADX does not operate on the
basis of an AUM
incentivised basis. It was further disputed that the
causes indicated why the FA respondents decided to leave ADX had
substance.
It afforded the FA respondents until 26 September 2023 to
exercise the options.
[53] The
aforesaid then brought the respondents’ current attorneys of
record, Schindlers, into
the fray. In a letter dated 26 September
2023, Schindlers stated that they acted for all the individual
respondents, save for Hill,
and provided a single reply on behalf of
all of them. In this response, it was disputed that there was any
concerted attack on
ADX’s business interests, and that all the
individual respondents decided to resign independently from one
another. The letter
extensively dealt with the providing of reasons
why the individual respondents decided to leave. It was also alleged
that all the
required information which would enable the FA
respondents to calculate the buyout option had still not been
provided. The there
was no undertaking that the individual
respondents would comply with their contractual obligations relating
to the restraints of
trade and confidentiality undertakings. There
was also no mention that the individual respondents would be joining
WA. What was
said was that ‘… a
considered approach
to the fairness and reasonableness of post-employment restrictions is
essential, ensuring that our clients are
not unduly burdened in their
professional pursuits …
’
,
and that ‘…
Our clients are committed to engaging in good faith discussions to
address these concerns and to explore mutually agreeable solutions
that respect the interests …
’.
[54] Webber
Wentzel responded on 28 September 2023. In this response, it is
recorded that the individual
respondents’ last day of work for
ADX would be Friday 29 September 2023. It was pointed out that all
the FA respondents (save
for Woodhead and Van Den Berg) had accrued
the right to exercise the buyout option, which was not taken up. The
allegations made
in the letter by Schindlers of 26 September 2023 as
to the causes for the individual respondents leaving was fully
addressed and
answered. A written undertaking was sought from all the
individual respondents that they would adhere to all their
contractual
obligations, which undertaking was to be given by no
later than 12h00 on Friday, 29 September 2023. The individual
respondents
were also required to return all the confidential
information of ADX in their possession. And in conclusion, it was
stated that
the FA respondents that qualified could still exercise
the buyout options. On 29 September 2023, Schindlers asked for more
time
to consult with the individual respondents and stated they would
respond on 2 October 2023.
[55] In
the course of September 2023, the FA respondents also sent
notifications to each of their individual
clients directly, and in
their own name, indicating that they would leave ADX effective 1
October 2023 for a new opportunity, and
such clients were invited to
contact the individual FA respondent concerned by 30 September 2023.
[56] On
2 October 2023 ADX, through new individual financial advisers
allocated by it to the clients
previously serviced by the FA
respondents, sent emails to these clients, informing these clients
that a new adviser has been appointed
for them as a result of the
departure of the FA respondents. These client email all read as
reflected in the following example:
‘…
I wanted
to reach out to you personally with some important news. Your
dedicated financial adviser, Kirsten Roux, has recently made
the
decision to embark on a new chapter in their career and has sadly
chosen to leave our team at Adviceworx. We extend our best
wishes to
him for his future endeavours. Our industry regulations require that
Adviceworx needs to assign a new Adviser to your
portfolio. I
understand that such change can be unsettling, especially when it
comes to something as crucial as your financial
planning. Please
allow me to reassure you that I am here to ensure a seamless
transition and to continue providing you with the
exceptional service
you have come to expect.
My name is Enrico Cudin,
and I am honoured to have been appointed as your new Financial
Planning Partner. My Partner profile is
attached for your
information. I am eager to get to know you better and to work closely
with you to achieve your personal financial
goals. I lo ok forward to
introducing myself in person …’
Out of the approximately
1500 emails sent to such clients, approximately 250 directly
indicated that they elected to follow the
FA respondents to WA. It
however turned out to be far more, as will be addressed below.
[57] The
answer promised by Schindlers then came on 3 October 2023. In this
answer, Schindlers now
confirmed that all the individual respondents
had commenced employment with WA on 1 October 2023, and that they
would be acting
for all the individual respondents and WA. It was
stated that because of concerns regarding the potential breaches of
the FAIS
Act, and the ongoing withholding of information regarding
the calculation and payment of the so-called restraint of trade,
non-compete,
and performance bonuses, the individual respondents were
compelled to seek alternative employment. Schindlers then provided
the
following undertakings on behalf of the individual respondents:
‘
During the
twelve-month period following 30 September 2023 (the "Restricted
Period"), each Exiting Adviser undertakes:
9.1.1. Not to make a
direct or explicit request for the transfer of any clients from the
Exiting Adviser's client base at ADX to
WASA, and not to advise
clients to divest any investments made with or through ADX and/or Old
Mutual.
9 .1 .2. Not to encourage
or induce any employees of ADX and Old Mutual to leave their
employment and join them at WASA.
9.1.3. Not to encourage
any clients of any other Exiting Adviser to terminate their
association or relationship with ADX and Old
Mutual.
9 .2. The Exiting
Advisers undertake to hold in strict confidence and shall not
disclose or use any confidential information of
ADX and Old Mutual to
compete with ADX and Old Mutual (insofar as the Exiting Advisers may
have been privy to confidential information
of ADX or Old Mutual,
which the Exiting Advisers deny).
9.3. The Exiting Advisers
confirm that they have returned all client information belonging to
ADX and Old Mutual that was in their
possession. Furthermore, if they
inadvertently possess any such information in any cloud-based storage
or private email accounts,
they commit to promptly deleting it.’
[58] In
a response on 4 October 2023, Webber Wentzel indicated that the
undertakings provided were
not
bona fide
and were
insufficient, and consequently ADX rejected the same. It was
indicated that ADX would proceed with an urgent application,
which
application then followed on 6 October 2023.
[59] In
addition to the above chronological exposition of facts, some further
pertinent facts bear
mention. Firstly, Roux, through the Roux Family
Trust, was the lessor of the premises from which ADX’s Gqeberha
office operated.
It being a month-to-month lease, Roux
immediately proceeded to terminate the lease with effect from 30
September 2023. Roux
and the other FA respondents in Gqeberha that
joined him, then continued to operate from this very premises as from
1 October 2023,
but now under the auspices of WA. In short, the ADX
Gqeberha office turned into the WA Gqeberha office, effective 1
October 2023.
[60] Another
pertinent fact is services rendered by an IT subcontractor, TCL
Consulting (Pty) Ltd (TCL),
in the course of August 2023 at the
Gqeberha office. It turned out to be undisputed that Roux instructed
TCL to do render these
services. The invoice for such services was
sent by TCL by e-mail to Roux’s ADX email account on 4
September 2023, and Roux
then forwarded it to his private e-mail
account. The invoice by TCL was dated 23 August 2023, and made
out to Roux and Kanga
(not ADX). In the invoice, it is recorded that
a 2-terabyte external storage device was acquired by Roux from TCL,
and then charges
are levied for ‘
Technical Labour to Copy
data to External Drive’.
It is clear that the services
provided by TCL on instruction of Roux was to copy data from the ADX
server to an external hard drive.
However, and where it comes to such
kind of IT services, this can only be carried out on instruction of
ADX’s IT department,
and not Roux, and the IT department gave
no instructions / permission for such work. The need for such prior
permission is confirmed
in an e-mail instruction to all adviser
partners as far back as 8 July 2017, specifically for security and
data protection reasons.
The size of the external hard drive is also
such that it would be capable of carrying a copy of the entire data
capability of ADX’s
server. Further investigation by ADX’s
IT department as a result of the aforesaid discovery turned to the
activity records
of the NAS device, which is a locally deployed file
server used in the Gqeberha office and physically housed at such
office. These
activity records showed that a third party was active
on the NAS folder structure and that an export (copy) of files had
occurred
to an external hard drive on 31 August 2023, however the
detailed logs of this activity had been cleared (deleted) from the
NAS
device. In 10 years of activity logs, this was the only occasion
such activity with accompanying deletion ever occurred. ADX also
referred to a number of instances where the individual respondents
would copy what was considered confidential client information
to
their private e-mail accounts, which was also not allowed.
[61] It
was also discovered that Roux had connected two personal devices to
access resources of ADX,
which is not allowed without ADX 's express
consent. Roux attempted to access ADX information on 17 and 23
October 2023 respectively,
after the termination of his employment
with ADX and after he had already taken up employment with WA.
[62] In
essence, the respondents do not despite the acts of copying
information as referred to above.
However, the respondents offer
explanations for this. The respondents admit that Roux requested TCL
to copy information from the
server at the Gqeberha office, however
it is stated that Roux asked that only information concerning Kanga
Trust and Taxation Solutions
(the non-competing business ADX allowed
Roux and his partners in that business to conduct) be copied, and
that this only happened
on 29 September 2023 after Stuart Porrill
(Porrill), the Partner: Service Executive at ADX, gave permission for
this. It is also
explained that Kanga as an FSP was required by the
Financial Intelligence Centre Act and the General Code of Conduct to
maintain
proper records, and this obligation could only be fulfilled
if the information concerned was copied from the server. As to the
forwarding of information to private e-mail accounts, it is explained
that some employees, in the course of performing their duties,
would
on occasion request their assistants to forward work-related emails
to their private email accounts for the purpose of conducting
work-related tasks outside of regular business hours, and this
practice was simply one of convenience.
[63] However,
and on reply, ADX has pointed out that the invoice by TCL was sent to
Roux at the beginning
of September 2023, and it specifically
reflected work done in August 2023, which assertion is indeed
correct. It was undisputed
that Porrill certainly gave no permission
for this, because he was not even involved at the time. Porrill did
attend to a hand-over
with the FA respondents on 29 September 2023,
and allowed the FA respondents to copy certain information under the
direct control
and supervision of Catherine Pillay (Pillay), from
ADX’s IT department, and Porrill, and this certainly did not
involve TCL.
It in fact took hours to work through the data to allow
what could be copied.
[64] On
26 October 2023, Webber Wentzel sent a letter to TCL. In this letter
reference was made to
the work done by TCL in August 2023 as referred
to in the aforesaid invoice, and it was contended that TCL
transferred data. It
was pointed out that this data transfer was not
authorised and constituted theft of data, which needed to be
investigated. TCL
was asked if it would co-operate in this
investigation by attending a confidential meeting, and it was
specifically informed of
the issues that would be discussed in this
meeting. One of these discussion points would be what data was
copied. TCL was also
informed of the various legal and / or adverse
consequences that may flow from a lack of its co-operation in this
regard.
[65] The
response to the letter from Webber Wentzel to TCL of 26 October 2023
came on 27 October 2023,
and it came from Schindlers. In this letter,
the request for a confidential meeting was declined. It was said
that: ‘…
TCL Consulting was mandated to extract data
for and/or on behalf of Mr. Roux, who had authority, or at least
ostensible authority,
to do
so …’. It was not
alleged that ADX, and Porrill for that matter, had authorised the
data transfer. It was however alleged
that the only data that was
transferred was that relating to Kanga. ADX was accused of adopting
bullying tactics.
[66] On
30 October 2023, Webber Wentzel answered the letter of 27 October
2023 from Schindlers, acknowledging
what was in its view an admission
that there had been a data transfer, and this was done without the
authority of ADX. The individual
respondents were asked for a full
inventory of the information copied. Schindlers answered on 2
November 2023, stating that TCL
has ‘
exclusive access
’
to the hard drive, which would remain under TCL’s
‘
custodianship
’, and an inventory of the data
copied would not be provided. It was also reiterated that Roux had
‘
ostensible authority
’ to instruct TCL and there
was ‘
implied consent
’ by ADX. Schindlers relied on
the admission by ADX in the founding affidavit that the ‘
departing
advisers
’ were allowed to copy data, however the problem
with this assertion is that this happened only on departure of these
individual
respondents on 29 September 2023, which was conducted
under the strict supervision of Porrill and Pillay, and did not
involve TCL
at all. On 7 November 2023, Webber Wentzel then demanded
that the hard drive and all copies of its content be handed over to
PWC
in Gqeberha on behalf of ADX, by 8 November 2023. Schindlers
responded on 8 November 2023 providing an inventory of the data that
was copied. On 9 November 2023, Webber Wentzel disputed the purported
inventory that had been provided, as being inadequate and
having no
‘
credible value’
. For a number of reasons provided
in such letter, it was again demanded that the hard drive be handed
over so its metadata could
be assessed.
[67]
Some
detail is devoted in the affidavits as to the interaction between the
parties relating to the handing over and accessing of
the hard drive,
and a variety of accusations of improper conduct was made by both
parties against the other. None of these details
need concern this
judgment as it simply is not relevant in deciding this case. The only
thing that is relevant is what was ultimately
discovered on the hard
drive. In this regard, this task fell to Geoff Budge (Budge) at Blue
Top Consulting (Pty) Ltd, who in turn
subcontracted to Adriaan Petrus
Van Den Berg (Adriaan), employed at Salient Discovery (Pty) Ltd as an
eDiscovery Consultant, the
latter being proficient in preserving and
collecting electronically stored information with a specific focus on
maintaining forensic
integrity. Adriaan, in extensively examining the
hard drive in the manner described in some detail in an affidavit
submitted by
him, observed heightened levels of activity specifically
on items with a ‘
Last
Accessed
’
date of 24 September 2023, 25 September 2023, and 27 October 2023.
This surge in activity related to an item marked ‘
Client
Folder
’
on the drive. In particular, there was a ‘
bulk
deletion event
’
on 27 October 2023. The date of 27 October 2023 is significant,
because it was the date after Webber Wentzel on 26 October
2023 first
made demand with regard to having access to the data copied to the
drive. In order to ascertain what may have been contained
in the item
‘
Client
Folder
’
on the hard drive, ADX had on 21 August 2023 fortuitously copied the
‘
Client
Folder
’
on the NAS device kept in the Gqeberha offices, as part of a company
wide exercise to move all confidential information
onto Microsoft
OneDrive.
[8]
This copy was then
provided by ADX to Adriaan, and it enabled him to conduct a
comparison between that folder and the identically
named folder on
the hard drive. Adriaan found that 2 909 client folders in the
‘
Client
Folder
’
copied by ADX matched what was found in the recycle bin of the hard
drive. But because of the deletion, the actual content
of the
individual files copied could not be ascertained. It could however be
ascertained that a substantial amount of data was
copied to the hard
drive.
[68] Porrill
stated that after discovering the invoice from TCL to Roux as
referred to above, he instructed
Pillay to conduct a much wider
investigation into possible data branches. Pillay reviewed the
activity logs on the NAS device,
and these logs showed that an
unknown third party was active on the NAS device on 30 and 31 August
2023, and that on these days,
an export / copy of files had taken
place. Porrill, on 15 November 2023, appointed forensic IT
investigators, Cyanre (Pty) Ltd
(Cyanre) to attend to try and
establish what was copied / exported. However, all Cyanre could
establish was that there was an export
/ copy of files on 30 and 31
August 2023, but not what was exported / copied, because someone had
deleted all the detailed activity
logs which would contain this
information. It was further discovered that Roux had deleted a number
of files on his e-mail account,
and then later removed all trace of
the files being deleted.
[69] As
touched on above, and in conjunction with the resignation of the
individual respondents, a
number of support staff members resigned.
These support staff members are directly associated with the FA
respondents, and according
to ADX, these staff members resigned
having been solicited by the FA respondents to remain employed with
them, as a ‘
team
’. In particular, Roux approached
Ignatius Botha (Botha), the business development manager and
specialist for the Gqeberha
office and the Partner Director for the
George region, to join the team that was leaving. Botha however
indicated he was not interested.
Further investigation uncovered
e-mail correspondence on 18 August 2023 between Roux and Lynda
Stansbury (Stansbury), one of Roux's
planning associates, in which
Stansbury asked Roux questions about,
inter alia
, the date of
departure from the employment of ADX, how clients are to be
approached, and whether clients would come over. Du Plooy
in an
e-mail to Roux on 21 July 2023 informed Roux that he would ‘
like
to engage further with you re your son-in-law Chris (Osmond), us
making him an offer too, and facilitating your succession
planning
with him
’
.
There was then a meeting between
inter
alia
De Kock and Osmond on 25 August 2023, and as indicated
above, Osmond also resigned on 31 August 2023.
[70] What
was further discovered as part of the investigation was that there
were engagements between
Roux, and Du Plooy and De Kock of WA /
Carmel, as early as April 2023. This included a Teams Meeting link
sent to Roux at his ADX
email address, with the subject ‘
Network
Acquisition Discussion
’, which meeting was arranged by De
Kock. On 24 April 2023, De Kock sent an email to Roux, cancelling the
meeting because
he had received a request to do this engagement on a
one-on-one basis. Roux then indeed engaged with De Kock on a
one-on-one basis.
Following this engagement, and on 18 July 2023, Du
Plooy sent a non-disclosure agreement to Roux for signature, stating
that it
was sent to be signed ‘
with regards to our recent
engagements’
and that once signed, WA would ‘…
prepare and send you
our
Letter of Intent and a copy of the
legal opinion we have been working on …
’
.
Roux proposed amendments to the non-disclosure agreement, which was
agreed to by Du Plooy on 21 July 2023, and Roux then signed
the
non-disclosure agreement on the same day. In this non-disclosure
agreement, it is recorded that:
‘
Wealth Associates
South Africa and Kirsten Roux each hold certain information and data
(Confidential Material) relating to existing
and planned business
activities, including but not limited to, the provision of Financial
Services. Financial Planning. and Investment
Management. and any
matter arising out of the aforegoing or related in any way thereto.
In connection with
discussions between Wealth Associates South Africa and Kirsten Roux.
for the purposes of evaluating and determining
the possibility,
nature and extent of a future business, each of the parties (the
Disclosing Party) will provide to the other Party
(the Receiving
Party) information which is of a secret, proprietary and/or
confidential nature (Confidential Material) on the condition
that the
Receiving Party agrees to the terms and conditions set forth herein.’
[71] Also
on 21 July 2023, du Plooy then sent Roux a letter of intent. The
covering email to Roux inter
alia read: ‘…
I want to
reiterate that Wealth Associates would value your participation in
our Group, we highly regard all our advisers, and your
ownership
alongside us is key to us building a successful business together …
’.
Turning then to the letter of intent itself, WA offered Roux the
position of financial adviser, effective 1 September 2023
(before his
notice at ADX even expiring). It is also apparent from this letter of
intent that Roux's position at WA would be identical
to his position
at ADX. It is even recorded that a ‘
due diligence
’
would be conducted on Roux's practice, which is the very business to
which the confidentiality and restraint provisions
applied. Roux was
offered an upfront payment of R800 800 to utilise for the
purchasing of shares in Carmel upon becoming a
representative of WA.
In addition, an amount of R3 203 200 was offered as a
‘
restraint of trade and non-compete payment
’
linked to the achieving historic ‘
annuity income
’,
which could only be the revenue generated in his practice at ADX.
Following this letter of intent, there was at least one
further
meeting between Roux and representatives of WA / Carmel. On 25 August
2023, a meeting was arranged between de Kock, and
Roux, and a few
days later (31 August 2023), Roux’s resignation landed. Roux
took up employment with WA on 1 October 2023,
and his name appeared
on WA’s representative register as from 2 October 2023. There
clearly must have been earlier interaction
between so as to enable
this immediate appearance of his name on such register.
[72] As
stated above, and with Roux’s resignation came that of Da
Costa, who also took up employment
with WA on 1 October 2023, and his
name appeared on WA’s representative register as from 2 October
2023. This was also the
case with Van Huyssteen, Maass, Van Den Berg,
Field, Wilson and Woodhead. As to Hill, he commenced employment with
WA in September
2023 as Head of Acquisitions and Growth and his name
appeared on WA’s representative register as from 18 September
2023.
Finally, Osmond also started with WA on 1 October 2023.
[73] On
the evidence, there also appears to be attempts by some or all of the
individual respondents
to solicit the custom of clients, whether
directly or indirectly, in order to terminate their mandates with ADX
and follow them
to WA. Some examples bear mention. Starting with
Roux, and in an email on 13 September 2023 addressed to Roux by one
of his clients,
David Lawson, refers to a meeting Roux had with the
client, which e-mail suggests that a better deal could be made for
the client
elsewhere, with reference to what the client was paying
for services at ADX. On 2 August 2023, Stansbury sent Roux an email
to
his private iCloud email address, with no subject line, attaching
a PDF document entitled ‘
Client Portfolio Summary
’,
which document contained all the client data (including the client
portfolio) of a particular client of Roux's, being Sheena
Bently.
Roux contended that he maintained a clear stance with any clients he
met with, making it explicitly known that he would
not solicit or
entice any client to follow him, and any of the meetings he had with
clients around the time of his resignation
were solely for the
purpose of providing them with financial updates, and informing them
of his decision to resign. But he does
not dispute the aforesaid
events and it is clear he did meet with his clients.
[74] On
23 August 2023, Da Costa emailed a copy of a spreadsheet entitled
‘
IPMG clients register’
, from his ADX email
account to an external, private email address aligned to his former
practice. Whilst it is true that IPMG is
the trading name for Kanga
and that ADX allowed
inter alia
Da Costa to continue to
operate this business relating to non-competing activities, a
consideration of the documents emailed by
Da Costa showed that it did
not only relate to IPMG non competing activities. It included
detailed client lists, broker codes,
and a list which appears to
consist of the ‘
Top 10
’ clients by amount under
management. The spreadsheet matched ADX’s current clients. Da
Costa does not dispute having
copied the information, but does say
there is nothing untoward in doing so, as this was only his personal
information. Whilst it
is true that some of the spread sheets indeed
contained personal information, the folder under ‘
IPMG
’
contained confidential client information, which Da Costa sought to
explain as being only a ‘
personal control sheet
’
which did not contain any investment data, policy/contract
information, or sensitive financial details, and his intention
was to
keep the files for his ‘
personal reference
’.
[75] In
an email dated 2 October 2023, a client of ADX, Cedric Kretschmer,
responds to Van Huyssteen
as follows: ‘…
Just to let
you know that I have just received an email informing me on what you
have already told me – I have a new financial
adviser.
Apparently I will be receiving a phone call shortly. As already
mentioned I have no intention of changing and they will
be informed
accordingly. I will keep you updated. Kind regards Cedric
’.
[76] On
2 October 2023, Michelle van Acker, an adviser from ADX, sent an
email to a client that had
been attended to by Field, Craig Garrow,
informing him of Field's departure from ADX. Garrow responded:
‘
Thanks for reaching out. We are however sticking with Sean,
thanks
’ (referring to Field). This is but one example.
There were many other clients that were contacted, and gave the same
response
that they were remaining with Field. It follows that Field
must have met and solicited the custom of these clients beforehand.
[77] On
12 October 2022, Mr Neil Terblanche of Brightrock, a client attended
to by Woodhead, erroneously
sent an e-mail to Woodhead’s former
ADX e-mail address, which read: ‘…
I've spoken to my
colleague, Jason Smit, who is busy assisting his brokers with regards
to the transition over from Advice Worx
to Wealth Associates. He has
spoken to our head of commissions regarding broker codes, and it was
discussed that the text below
needs to be included in the email to
BrightRock with the necessary REP and Broker form: “Dear
BrightRock, Please see attached
application for
a
rep code for
XXXXXXX. Please note that this FA has a code currently under
Adviceworx but has resigned from the FSP. However, Adviceworx
will
not allow a bulk client transfer to XXXXXX as Adviceworx will retain
the clients. We need the new code to be issued ASAP under
Wealth
Assosiates so that individual broker notes can be completed and sent
in, in order to move the clients onto the new code.
Please note that
Adviceworx will try everything in their power to delay the transfer
and resignation of the advisers code under
their FSP. Thanks.”
XXXXX
-
being the adviser in question I believe Nicolene is
handling all the transfers from Wealth Associates side, so if you
need anything
regarding the transfer you can contact her for
assistance.
’ (sic)
[78] During
December 2023, ADX received broker change requests on behalf of
clients of ADX from Marriott
Investment Managers. These clients were
serviced by Da Costa during his employment with ADX. The broker
change request dates range
from 19 October 2023 to 11 December 2023.
Similarly, and on 3 January 2024, Momentum confirmed that they
received intermediary
change notifications from a client serviced by
Van Den Berg during his employment with ADX.
[79] In
the end, and by the time this matter was finally heard, of the 1918
clients who were serviced
by the FA respondents and Hill during their
employment with ADX, 820 clients have terminated their relationship
with ADX and moved
to WA. A further 433 clients have retained only a
partial mandate with ADX. In particular, 355 clients were serviced by
Roux of
which 122 have completely terminated their entire mandate
with ADX and 84 partially terminated their mandate. In the case of Da
Costa, of the 303 clients he serviced, 105 have completely terminated
their mandate with ADX, and 54 partially terminated their
mandate. In
the case of Maass, of the 242 clients serviced by him, 99 have
completely terminated their mandate with ADX, and 29
partially
terminated their mandate. In the case of Van Huyssteen, of the 125
clients serviced by him, 45 have completely terminated
their mandate
with ADX, and 68 clients partially terminated their mandate. In the
case of Van Den Berg, of the 348 clients serviced
by him, 236 have
completely terminated their mandate with ADX, and 8 partially
terminated their mandate. In the case of Field,
of the 366 clients
serviced by him, 66 have completely terminated their mandate with
ADX, and 175 clients partially terminated
their mandate. In the case
of Wilson, of the 156 clients serviced by him, 129 have completely
terminated their mandate with ADX,
and 10 clients partially
terminated their mandate. And finally in the case of Woodhead, of the
23 clients serviced by her, 18 have
completely terminated their
mandate with ADX, and 5 clients partially terminated their mandate.
All these clients have moved to
WA where the FA respondents are
employed, and most of these terminations took place after the
restraint application was brought.
[80] Several
of the documents which record the termination of client mandates with
ADX and the appointment
of WA as the new adviser, more or less
identically read: ‘
I, the undersigned hereby confirm that I
approached the adviser of my own account and volition and requested
that my longstanding
relationship with the adviser continues in
his/her role at the above-mentioned Financial Services Provider. I
further request that
all fee arrangements are to remain the same and
paid to the new FSP as per the above instruction unless another
arrangement has
explicitly been made and communicated.
…’
[81] ADX
has a client referral agreement in place with one Leon Fourie
(Fourie), who conducts a tax
advisory business, in terms of which
Fourie would refer clients to ADX and be paid a referral commission
as provided for in such
agreement. Roux was responsible for
maintaining the relationship with Fourie on behalf of ADX. One of the
referrals made by Fourie
was for a client Donald Houston (Houston),
who became a client of ADX and was attended to by Roux. In an email
between Fourie and
Houston dated 1 October 2023, it is clear that
Fourie was facilitating a move from ADX to Roux, recording the
following: ‘
As promised, I'm sending you this mail in order
for you to reply and confirm that you wish to continue with Kirsten,
Gavin, Lindy
and their team after they move away from Adviceworx.
They will provide more details of their new corporate structure as
soon as
the transition has been completed.
’. Houston then
responds as follows: ‘
Happy to confirm that we should
continue with Kirsten and his people.
’ It may be added that
Stansbury, on 22 August 2023, forwarded a copy of the agreement with
Fourie to Roux’s private
iCloud account. The evidence also
suggests that Fourie is now supporting Roux with referrals.
[82] According
to the respondents, and on 28 September 2023, Old Mutual and Old
Mutual Investment Services
(Pty) Ltd provided WA and some of its
subsidiaries with notice of termination of their broking agreements.
The effect of this would
be that WA may not sell, distribute, or
manage Old Mutual products. The respondents contend that
approximately 60% to 70% of ADX's
business are Old Mutual products,
which means that the bulk of ADX's client base cannot be serviced by
any employee of WA. This
would also apply to the individual
respondents upon joining WA, in that they cannot conduct any
activities related to the products
of Old Mutual, thus limiting the
possibility of client solicitation. This contention however does not
explain the mass exodus of
clients from ADX to WA as set out above,
most of which happened after termination of these broking agreements.
[83] A
final consideration is a contention of the respondents that ADX did
not, in the past, enforce
its rights under the restraint of trade
agreements consistently. It is said that many advisers have resigned
from ADX in the past,
and despite receiving letters of demand
relating to restraints breached, no legal proceedings were initiated
against these individuals.
An example was mentioned of three
financial advisers resigning simultaneously from ADX and were then
employed by the same employer
they had prior to joining ADX, however
their restraint was not enforced. Other examples were mentioned, but
I do not intend to
delve into all of them, the aforesaid being the
most pertinent example.
[84] The
above being the pertinent facts relating to the deciding of this
application, I will now turn
to deciding this matter, by first
setting out the applicable restraint of trade principles.
Restraint Principles
[85]
In
A
J Charnaud & Co (Pty) Ltd v van der Merwe and Others
[9]
the
Court summarized the process where it comes to deciding whether or
not to enforce restraints of trade as follows:
‘
In
short, the logical sequence that applies in the case of an employer
(the applicant) seeking to enforce a restraint against an
employee,
is firstly to prove the existence of a restraint obligation that
applies to the employee. Secondly, and if a restraint
obligation is
shown to exist, the employer must prove that the employee acted in
breach of the restraint obligation imposed by
the restraint. Finally,
and once the breach is shown to exist, the determination then turns
to whether the facts, considered as
a whole, show that the
enforcement of the restraint would be reasonable in the
circumstances.
’
[86] As
stated above, there can be no doubt that all the individual
respondents (save for Osmond) bound
themselves to a restraint of
trade covenant. There is equally no doubt that all the individual
respondents bound themselves to
a confidentiality undertaking. Both
these undertakings are found in the employment agreements and / or
restraint agreements concluded
between ADX and the individual
respondents, as has been set out above. These agreements are valid
and binding on the parties.
[87]
It
is trite that as a matter of general principle, restraints of trade
are valid and binding, and enforceable, unless the enforcement
thereof is considered to be unreasonable.
[10]
A restraint of trade also does not infringe on the constitutional
right to free economic activity.
[11]
[88]
Whether
the enforcement of a restraint of trade would be reasonable is
dependent upon deciding the following questions set out in
Basson
v Chilwan and Others
[12]
:
(a) Does the one party have an interest that deserves protection?;
(b) If so, is that interest threatened by the other party?;
(c) does
such interest weigh qualitatively and quantitatively against the
interest of the other party not to be economically inactive
and
unproductive?; and (d) Is there an aspect of public policy having
nothing to do with the relationship between the parties that
requires
that the restraint be maintained or rejected. More recently, a
further enquiry has been added, which can be called question
(e),
being whether the restraint goes further than necessary to protect
the relevant interest.
[13]
[89]
This
Court and the Labour Appeal Court have been consistently applying
these five considerations in determining whether the enforcement
of a
restraint of trade would be reasonable.
[14]
Deciding each of these considerations is a determination on the facts
of that particular case, applying, as held in
Ball
v Bambalela Bolts (Pty) Ltd and Another
[15]
,
the following approach:
‘…
the
determination of reasonableness is, essentially, a balancing of
interests that is to be undertaken at the time of enforcement
and
includes a consideration of 'the nature, extent and duration of the
restraint and factors peculiar to the parties and their respective
bargaining powers and interests …'
[90]
Clearly,
and in terms of the above principles, it must be established whether
a protectable interest in favour of the party seeking
to enforce the
restraint of trade exists. As to what would constitute a protectable
interest, it is trite that it can be found
in one or both of two
considerations, being confidential information (trade secrets), or
trade connections.
[16]
In
Labournet
(Pty) Ltd v Jankielsohn and Another
[17]
the Court held:
‘…
A
restraint is only reasonable and enforceable if it serves to protect
an interest, which, in terms of the law, requires and deserves
protection. The list of such interests is not closed, but
confidential information (or trade secrets) and customer (or trade)
connections are recognised as being such interests. …’
[91]
Turning
first to the concept of confidential information, this would be:
[18]
(a) Information received by an employee about business opportunities
available to an employer; (b) information that is useful or
potentially useful to a competitor, who would find value in it; (c)
Information relating to proposals, marketing or submissions
made to
procure business; (d) information relating to price and/or pricing
arrangements, not generally available to third parties;
(e)
information that has actual economic value to the person seeking to
protect it; (f) customer information, details and particulars;
(g)
information the employee is contractually, regulatory or statutory
required to keep confidential; (h) Information relating
to the
specifications of a product, or a process of manufacture, either of
which has been arrived at by the expenditure of skill
and industry
which is kept confidential; and (i) information relating to know-how,
technology or method that is unique and peculiar
to a business.
Importantly, the information summarized above must not be public
knowledge or public property or in the public domain.
In short, the
confidential information must be objectively worthy of protection and
have value.
[92]
Where
it comes to trade connections, it would qualify as an interest worthy
of protection where the employee had access to customers
/ clients
and was in a position to build up a particular relationship with the
customers / clients so that when he or she leaves
employment and
becomes employed by a competitor, the employee could easily or
readily induce the customers / clients to follow
the employee to the
new business.
[19]
Whether the
employee can be seen to have the ability to exert this kind of
influence, is dependent upon: (a) the duties of the
employee; (b) the
employee’s particular personality and skill; (c) the frequency
and duration of contact between the employee
and the customer(s); (d)
the nature of the relationship between the employee and the
customer(s) and in particular whether the
relationship carried with
it a notion of trust and confidence; (e) the knowledge of the
employee concerning the particular requirements
of the customer and
the nature of its business; (f) how competitive the rival businesses
are, and (d) the nature of the product
or services at stake.
[20]
[93]
In
fact, and in the context of the principle of trade connections, a
client / customer base could be seen to be an intangible asset
that
accrues to the employer’s business, in the form of what is
known as goodwill.
[21]
In
Jacobs v
Minister of Agriculture
[22]
the Court held:
‘…
As to the
nature of goodwill there have been many judicial pronouncements, and
I shall have to refer to some of those later. At
this stage it will
suffice if I say that
goodwill is an intangible asset
pertaining to an established and profitable business, for which
a purchaser of the business
may be expected to pay, because it
is an asset which generates, or helps to generate, turnover and,
consequently, profits …
’
[94]
The
consideration of goodwill in the case of the enforcement of a
restraint of trade occurred in
Xavier
Hair Lab CC v Versace-Peters
[23]
,
in particular where the employees sought to restrained had sold their
business to the employer seeking to enforce the restraint,
and then
later proceeded to set up a new competing business. The Court
said:
[24]
‘…
In
my view, it is legitimate to limit a vendor's future commercial
activities in respect of the business he has sold, by contractually
obliging him not to compete with the purchaser. To do otherwise,
would be to allow the vendors, to open a business in opposition
to
that which they have sold, and thus 'steal back' the customers they
have sold to the purchaser as part of the goodwill. Post
sale
business restrictions on the activities of the seller are necessary
to protect the goodwill of any business …
’
[95]
Similarly,
and in
Van
der Watt v Jonker
[25]
,
the Court, in dealing with the enforcement of a restraint of trade as
part of protecting the goodwill of a business, had the following
to
say:
‘…
restraint
of trade against a seller forms part of the goodwill of a
business. In order to determine all the components contained
in
the
merx
in
a sale of a business one must have regard to the contract and those
components will normally, if not invariably, include
the goodwill of
the business. …
’
[96]
And
finally in this regard, in
Bonfiglioli
SA (Pty) Ltd v Panaino
[26]
the Court said the following:
‘…
The
restraint agreement is therefore geared at protecting the employer's
proprietary interest after the employee has left the employer's
employment. In
Reeves & another v Marfield Insurance Brokers
CC & another
, the object of a restraint of trade term
was described as follows:
'The legitimate object of
a restraint is to protect the employer's goodwill and customer
connections (or trade secrets) and the
restraint accordingly remains
effective for a specified period (which must be reasonable) after
the employment relationship
has come to an end.’’
[97]
Especially
in the financial services industry, this goodwill is one of the
primary assets of the employer’s business upon
which its
success is dependent. The financial adviser employees in essence
maintain and cultivate this goodwill, for the purposes
of generating
and also maintaining revenue. Without this goodwill, a financial
service provider (FSP) business has little value.
In
Brenthurst
Wealth Management (Pty) Ltd v Reinach and Another
[27]
the Court said:
‘
Turning then to
the applicant’s client base and confidential information, this
is where, as I have said, the applicant’s
real protectable
interest lies. It cannot be gainsaid that the most critical asset,
for the want of a better description, in a
business such as that of
the applicant, is its client base. Also, what would distinguish the
business of the applicant from other
competitors would in all
likelihood be sensitive and confidential, and of interest and value
to competitors. In sum, the client
base, the services provided to
that client base, and the methodology of such service, is the reason
for the existence of the business
of the applicant. The applicant,
from a legitimate business and operational perspective, must be
entitled to protect its client
base from being effectively eroded
from the inside.’
[98]
The
seniority and articular position of the employee concerned is also an
important consideration where it comes to evaluating the
existence of
a protectable interest.
[28]
The more senior the employee and / or the position the employee
occupies, the more likely it is that the employee would be entrenched
with what can legitimately be considered to be a protectable interest
based on the above two considerations.
[29]
Seniority is not just the level of the employee in the organization
of the erstwhile employer, but also includes factors such as
the
influence, knowledge, expertise, nature of duties, relationships and
even the particular person of the employee.
[99] The
above being the applicable principles, I will now turn to applying
these principles to the
facts of this case, starting with the issue
of the protectable interest.
The protectable
interest
[100]
First
things first. What facts must be accepted in coming to a decision? In
my view, opposed restraint of trade applications, decided
on the
basis of motion proceedings, are no different to any other
application in any other dispute where it comes to the principles
applicable to resolving factual disputes. This remains the case, even
considering the intricacies of the issue of the applicable
onus
in restraint of trade disputes.
[30]
The trite principles established in
Plascon
Evans Paints v Van Riebeeck Paints
[31]
thus remain applicable.
[32]
The Court in
Ball
supra
[33]
said ‘…
Resolving
the disputes of fact in favour of the party sought to be restrained
involves an application of the Plascon-Evans rule
….
’,
and amplified the factual enquiry to be made as follows:
‘…
In
Reddy
v Siemens Telecommunications (Pty) Ltd
, it was held that the
reasonableness of a restraint could be determined without
becoming embroiled in the issue of onus. This
could be done if
the facts regarding reasonableness have been adequately explored in
the evidence and if any disputes of fact are
resolved in favour of
the party sought to be restrained. If the facts, assessed as
aforementioned, disclose that the restraint
is reasonable then
the party, seeking the restraint order, must succeed, but if those
facts show that the restraint is unreasonable,
then the party, sought
to be restrained, must succeed. …’
[101]
As
I have touched on above, I believe that most of the facts that would
be considered pertinent in deciding this case are either
common
cause, undisputed, or undeniable. However, there are instances where
I believe that some of the explanations offered by
the respondents
are palpably false, and can be rejected with confidence. I will deal
with this later in this judgment. I however
find,
in
casu
,
the following
dictum
in
Rail
Commuters Action Group and Others v Transnet Ltd t/a Metrorail and
Others
[34]
to be instructive in dealing with the facts of this case:
‘…
Ordinarily,
the Court will consider those facts alleged by the applicant and
admitted by the respondent together with the facts
as stated by the
respondent to consider whether relief should be granted. Where,
however, a denial by a respondent is not real,
genuine or in good
faith, the respondent has not sought that the dispute be referred to
evidence, and the Court is persuaded of
the inherent credibility of
the facts asserted by an applicant, the Court may adjudicate the
matter on the basis of the facts asserted
by the applicant. …'
[102]
It
is trite that in the industry in which ADX operates, being the
financial services industry, client relationships, trust and
confidence are of critical importance. This business is extremely
competitive in the sense that any client can without much difficulty
move his or her portfolio to another FSP. It is virtually always the
case that a financial adviser would have a very close working
relationship and relationship of trust with the clients he or she
services, and would often describe these clients as ‘
my
clients’
.
But that does not make it so. In
TWK
Agriculture Ltd v Wagner and Another
[35]
,
where the Court specifically dealt with a broking relationship, it
was held:
‘…
The
applicant’s interest in those connections is an important
aspect of the applicant’s incorporeal property in the
form of
goodwill and it is trite law that it is entitled to protect that
interest. When the respondents dealt with those clients,
they did so
on behalf of the applicant’s business and not for their own
account. Whether those clients were ones that they
had originally
brought into the applicant’s business through the sale
agreement, or whether those with clients they acquired
in the course
of working for the applicant, the insurance business and relationship
developed with those clients and was that of
their employer and not
theirs to exploit for their own personal gain, even if they had been
responsible for obtaining such business
or sustaining it through
their personal relationship with those clients …
’
[103] Based
on the facts as set out above, there can be no doubt that ADX and WA
are both FSPs and
are direct competitors, trading in the same market,
and offering the same kind of services and products to clients. They
are both,
simply said, competing FSPs. In fact, ADX and WA largely
utilise the exact same methodology as part of their aspirations on
how
to grow their respective businesses, being the sourcing and then
incorporation of financial advisers found in the market that have
an
established client base. Thise financial advisers are compensated for
bringing in their client base by way of a restraint payment,
and the
financial adviser is then employed in the business to maintain and
grow that practice. It may be that ADX and WA operate
differently
where it comes to the manner in which the financial adviser would be
afforded a shareholding interest in the bigger
business, but the fact
remains that this kind of interest is squarely on the table in the
recruitment processes of both ADX and
WA. In short, there can be
little doubt that ADX and WA are constantly on the hunt for financial
advisers with an established client
base to bring into their
respective businesses. In any event, it would not be possible for
clients to move their business to WA,
where they will be serviced by
the FA respondents, if WA was not a directly competing business.
[104] It
is also important to consider, in this case, the role of Carmel. It
was created for the very
purpose of establishing a group business
consisting of financial service providers, with WA being its first
acquisition. De Kock,
the CEO of Carmel, is a former executive of ADX
who left in 2020 under circumstances that can hardly be described as
pleasant.
Carmel, and with it its only acquisition so far, being WA,
are clearly on a dedicated drive to find either financial adviser
businesses
or individual financial advisers, to bring into the group
so as to achieve the primary objective of Carmel to grow the group
business.
[105] As
I have said above, what is critical, if not indispensable in this
entire acquisition process,
is the client base of the financial
adviser. Without the client base, the financial adviser would mean
little to WA and / or Carmel,
and for that matter to ADX as well.
This is not about finding and employing financial advisers to work as
employees on an existing
client base in the business. It is about
finding financial advisers with clients to grow the business. The
client base of a FSP
is the beating heart of the business, and
without it, the business would have little value. It is the central
component in the
form of the goodwill of the business and would be,
unlike businesses in other industries, probably the most valuable
asset in the
business.
[106] Effectively,
and once recruited, the financial adviser would for all practical
purposes ‘
sell
’ his or her client base to ADX /
WA, as the case may be. In this context, the financial adviser, as
said, is paid a restraint
payment, which is directly linked to the
substance (size and value) of the client book brought in. The
restraint payment is also
then directly linked to an actual restraint
of trade covenant. This, in my view, is undoubtedly intended to
protect the goodwill
of the business by way of restraints of trade.
Using Roux as an example, the evidence shows that he was paid a
restraint payment
when he joined ADX, commensurate to the value of
his client book brought in. Then, and in the letter of intent by WA
to Roux, he
is also offered a substantial restraint payment
commensurate to the client book he would bring in, the final value of
which is
to be determined by a due diligence. All the other FA
respondents that joined ADX also brought in client books in exchange
for
restraint payments, and I am quite sure that this would also be
the case with them joining WA.
[107] As
is stated by De Kock, the client portfolio value of the clients
serviced by the FA respondents
at ADX was estimated to be in the
region of R2.5 billion. This obviously weighed heavily with De Kock
in entertaining the prospect
of employing the FA respondents. It also
turned out from the evidence that the FA respondents serviced a total
client base of 1918
clients. I am quite sure that this is what WA and
Carmel wanted, and with it, the financial advisers themselves who
could take
care of these clients and their portfolios. The revenue
earned by a FSP is directly linked to the number of clients and the
value
of their portfolios, as the FSP should receive a continuous
percentage commission on the value of such portfolios. The FSP and
the individual financial adviser share such commissions, on the basis
as contractually determined between them. Considering the
aforesaid,
it is not hard to appreciate the significant value all this would
have to WA / Carmel’s acquisition (business
growth) drive.
[108] Next,
and what would also be essential to any FSP business would the
establishment, maintenance
and then utilization of an effective and
accurate client database, or better called, a client management
system (CMS). It is clear
from the affidavits by both ADX and WA that
this is another key component of their respective businesses. There
is often substantial
spending by an FSP on the development of an
effective CMS, for the simple reason that it enhances client
management, retention,
communication and maximises revenue earned
from clients. ADX has set out in some detail as to how it went about
in establishing
a CMS, principally in the form of its NAV system, and
what time effort and cost it spent on this, but I do not think this
adds
much value in deciding this case. I accept WA’s evidence
that it had developed its own CMS, and had no interest in ADX’s
management tools or the NAV system. In any event, for a long standing
business like WA with its own established systems (CMS),
to seek to
copy and then implement a completely foreign system like ADX’s
NAV system, would be an extensive and costly exercise,
and I do not
believe this is ever what WA had in mind where it came to all that
transpired in this case. It also does not appear
from the evidence
that the individual respondents copied systems. I am not convinced
nor satisfied that ADX has demonstrated the
existence of a proper
protectable interest where it comes to its management tools and the
NAV system, as this would be more or
less bespoke to its own
business.
[109]
But
where it comes to client information as contained in any CMS, this is
a totally different kettle of fish. It was ultimately
undisputed that
any CMS at a FSP would contain a wealth of extremely sensitive and
confidential information concerning clients.
ADX explained that it
kept all client information on its systems, and that included client
particulars, contact details, addresses,
investment activities,
advice given, products deployed, investment values and other personal
information. There can be little doubt
that this would qualify as the
kind of confidential information worthy of protection. It would
certainly not be in the public domain,
and would be of great value to
a competitor such as WA. It is undeniable that anyone that copied
that information from ADX’s
systems would know from that copy
exactly who to contact, what that person wants, and what that person
can be offered to secure
the business. Such a competitor will be
saved a substantial amount of time, effort and cost in establishing
its own base of leads
from which secure possible clients. And then,
to make it even worse
in
casu
,
the client database copied would be linked with a financial adviser
having a relationship with those clients, to effectively leverage
off
that information. Finally in this respect, and on the undisputed
facts, the FA respondents all had unfettered access to all
client
information on the systems of ADX. It is also undisputed that the
requirements and arrangements with each individual client
is unique,
and that the industry is highly competitive. This kind of
confidential information is by its nature also inextricably
linked to
the issue of trade connections.
[36]
ADX undoubtedly has a proper protectable interest in this regard. In
SPP
Pumps (SA) (Pty) Ltd v Stoop and Another
,
[37]
the Court said:
‘
In my view, the
respondent acquired confidential information of the business of the
applicant including personal knowledge of the
customers by virtue of
his duties and the relationship he had with the suppliers and
customers of the applicant. It is for this
reason that I am of the
view that the applicant has made out a case which has not been
seriously challenged. The case is that
the applicant has an interest
in the confidential information acquired by the respondent during his
employment. There is very strong
evidence that the respondent had,
during his employ with the applicant, acquired confidential
information which requires protection.
The information which the
respondent acquired, particularly the relationship with the
customers, is of such a nature that when
he left the applicant's
employ, he posed a risk to the applicant's business if he were to
join any other competitor. The level
of risk rose higher when he
established the second respondent and commenced conducting the
business in competition with the applicant.’
[110]
On
the issue of trade connections, it would seem obvious that surely ADX
would have a legitimate protectable interest in this regard,
considering the nature of its business, the positions and roles of
the FA respondents, and the particular industry. However, and
in
their answering affidavit, the respondents tried to make out a case
that the FA respondents did not have a close working relationship
with clients and did not regularly call on clients. It was even said
the products were ‘
stagnant
’,
requiring little attention from the financial advisers. I am quite
comfortable in rejecting these contentions without hesitation,
especially considering the nature of the business conducted by
financial advisers, as summarized above. There can be no doubt that
the FA respondents would each have a direct and close working
relationship with all the clients they serviced. As will be addressed
later in this judgment, the substantial client loss of ADX after
their departure is in itself evidence of this. Yet again, I must
emphasize that it is all about the clients, and for the FA
respondents to then effectively try to say the clients are not that
important, is simply not on. I therefore conclude that the kind of
relationship the FA respondents had with the clients they serviced
was that of trust and confidence, and certainly qualified as a close
working relationship. It is the kind of relationship where
it can be
confidently said the FA respondents would carry the clients in their
pocket. It is also undisputed that the services
are of such a nature
that the rendering thereof can with relative ease be moved to a new
service provider.
[38]
This
constitutes a proper protectable interest for the purposes of the
enforcement of a restraint of trade.
[39]
In
Rawlins
and another v Caravantruck (Pty) Ltd
[40]
the Court said:
‘
The need of an
employer to protect his trade connections arises where the employee
has access to customers and is in a position
to build up a particular
relationship with the customers so that when he leaves the employer's
service he could easily induce the
customers to follow him to a new
business …
Much will depend on the
duties of the employee; his personality; the frequency and duration
of contact between him and the customers;
where such contact takes
place; what knowledge he gains of their requirements and business;
the general nature of their relationship
(including whether an
attachment is formed between them, the extent to which customers
rely on the employee and how personal
their association is); how
competitive the rival businesses are; in the case of a salesman, the
type of product being sold; and
whether there is evidence that
customers were lost after the employee left …’
[111] All
the above being said, what then happened
in casu
? In my view,
nothing less than a hi-jacking of a part of the business of ADX by
the individual respondents, acting in cahoots with
WA and Carmel. I
say this for a number of pertinent reasons, which now follow.
[112] It
appears that on their own version, the individual respondents were
disgruntled employees.
Added to that De Kock, who left ADX on
unfriendly terms, was tasked by investors to establish a competing
FSP group (Carmel) which
would be competition with ADX. De Kock was
familiar with several of the individual respondents, who had worked
with him before.
It is clear from the evidence that De Kock had a
fair idea of what Carmel and WA stood to gain by in essence procuring
the individual
respondents. And with the ripe territory of
disgruntled individual respondents, the die was cast.
[113] In
my view, and despite contentions by the respondents to the contrary,
I am satisfied that Roux
and Hill were the instigators (designers)
for what came to pass. Both Roux and Hill were familiar with De Kock
and approached and
negotiated with him well before taking the step of
resigning. Hill was in fact appointed by WA to be responsible for
business development,
which included recruitment of financial
advisers, being the same job he had in ADX. He started on 31 August
2023 at WA, the same
say Roux resigned from ADX. Roux was also
informed by WA in July 2023 in his negotiations with WA that he would
be growing the
business at WA (discussed in more detail below). This
takes place against the backdrop of Roux being the team leader of the
Gqeberha
financial advisers, whilst Hill was the manager for the Cape
Town financial advisers. All this considered, what happened when all
the individual respondents resigned on the same day, along with Roux,
and along with Hill departing ADX, cannot be mere coincidence
and was
clearly a concerted and pre-planned course of action. I do not for a
second accept that all the FA respondents resigned
on the same day
using identical sets of resignations to join the same business (WA),
was independent decisions made by each FA
respondent of his or her
own accord, independent from all the others. What makes it worse is
that basically all the support staff
to these FA respondents also
resigned at same time (there were further resignations later in
September 2023 as well). There is
also undisputed evidence concerning
Roux having discussions with a number of other employees about him
leaving, and it is unlikely
that these employees would then simply
resign without the guaranteed prospect of alternative employment,
which in this case was
awaiting them at WA. And finally, there was
evidence that Roux actually offered jobs to some employees at WA. All
said, my view
is that this was an orchestrated and planned mass
exodus of employees, from ADX, to WA.
[114] It
is important to consider what transpired before Roux even resigned.
On the undisputed evidence,
Roux met De Kock and Du Plooy in June /
July 2023 to discuss his prospects with WA. It is also clear from the
evidence that he
not simply offered a job as a financial adviser at
WA. The idea was that he was going to work with WA to build a
business. So much
is clear from the non-disclosure agreement he
signed on 21 July 2023. The moment he signed this agreement, and also
on 21 July
2023, he was effectively given an offer, which entailed
him bringing his whole practice to WA. Already at this point, Du
Plooy
indicated to Roux that WA was interested in employing Osmond,
and Roux was effectively asked to facilitate this. Considering the
close working relationship between Roux and all the other FA
respondents that resigned at the Gqeberha office, there was the
opportunity
to involve them in achieving this objective. In fact, how
would all these FA respondents even know to approach WA
en masse
for employment and / or how would WA know they were even susceptible
to leaving ADX, if this was not facilitated by Roux.
[115] If
the individual respondents were all so disgruntled that they
independently decided to resign
on the same day (31 August 2023),
then why do their resignation letters make no mention of this? There
is also no evidence on how
each of them, if they acted individually
and independently, came to meet with someone at WA, when that meeting
was held, and what
terms of employment were offered and agreed to
between each individual and WA. In order to substantiate a contention
of independent
decision making, the individual respondents needed to
take the Court into their confidence and provide these particulars.
And only
when ADX decided to send letters of demand after their
resignation, demanding that the individual respondents provide an
undertaking
that they would comply with their restraints of trade,
they each answer, individually, on 20 September 2023, that they were
compelled
to leave due to ADX’s conduct, citing virtually
identically worded reasons for this contention, which is simply
unlikely
if they were acting independently from each other. And even
then, they still do not say they would be joining WA.
[116] Next,
Roux, being the landlord of ADX’s Gqeberha offices, and
immediately upon resigning,
gives one months’ notice of
termination of the lease agreement with ADX for those offices. The
effect of this was that on
1 October 2023, the day after the
individual respondents’ (save for Hill) notice period expired,
they continued working in
those same offices, but now as financial
advisers of WA.
[117] But
what puts this over the top is what happened in August 2023. I have
little hesitation in
accepting that in this period the individual
respondents embarked upon a process of contacting clients informing
such clients of
their departure. There a number of individual pieces
of evidence illustrating this to be the case, which are set out
earlier in
this judgment, which I do not intend to repeat. Whilst it
may be so that the individual respondents did not specifically advise
those clients to join them, I believe this was implied, and certainly
contemplated, especially considering the mass exodus that
happened
after the individual respondents left, as dealt with below.
[118] Even
worse still, and also in August 2023, there was a concerted effort on
the part of some of
the individual respondents to copy ADX’s
confidential information, and in particular, the entire client
database. It was
common cause that Roux instructed TCL to copy
information from the database in August 2023 onto a 2-terabyte hard
drive, which
is of sufficient size to copy the whole database. Roux
had no permission to do this, and such activity could only be
conducted
with prior approval from ADX’s IT department. Had it
not been for the discovery of the invoice by TCL directly to Roux for
this work, ADX would not have known about this. But it is the
reaction when this discovery was made that is concerning. The
individual
respondents did a number of things. First, they refused to
say what information was copied, alleging it was in the ‘
custody
’
of TCL. Why TCL would need to be in the custody of any information
copied from ADX’s servers is unclear. Then the
individual
respondents supply an inventory of what was purportedly copied, which
was rejected by ADX’s attorneys because
it was unsubstantiated
and insufficient. ADX’s attorneys then directly approach TCL on
26 October 2023, demanding a meeting
to
inter alia
investigate
what was copied, which meeting is refused. ADX is then compelled to
demand access to the hard drive itself against
threat of litigation,
and then, when it ultimately gained access to the hard drive, it was
discovered that what had been copied
from ADX’s servers had
been deleted on 27 October 2023, the day after ADX’s initial
demand to TCL. But fortunately,
ADX was able to establish that what
had been deleted was 2 909 client folders which matched the
server folders. I am convinced,
on the facts, that what had been
copied in August 2023 on instructions from Roux, was ADX’s
entire client database.
[119] But
the above is not the only actions relating to copying of information.
There are other instances
of confidential information being sent by
other individual respondents in the course of August and September
2023 to private e-mail
addresses. This included, for example, the
referral agreement between ADX and Fourie, as well as other client
information. Da Costa
sent information to his own personal email
purporting to be information relating to Kanga, but it turned out it
was far more than
that and included ADX client information. None of
this was authorised by ADX’s IT department, as required.
[120] The
explanation by the individual respondents that all that was copied
was information relating
to clients of Kanga in respect of
non-competing services, as well as other personal information, does
not, in my view, hold any
water. Although it could not be said
exactly what was copied, it was clear from the evidence that what was
copied matched ADX’s
entire client database folder. Several
instances of copying information in this time period, followed by
deletion of logs, are
also of concern, and is unheard of in ADX. And
finally in this regard, and on 29 September 2023, upon the individual
respondents’
departure, Porrill and the IT department spent
considerable time with individual respondents determining what they
were allowed
to copy, as required by the policies of ADX. So
therefore, why would it be necessary to copy anything else
beforehand?
[121] I
am also compelled to express my concern over the false version
offered by the respondents relating
to the copying of the information
by TCL from the ADX server in the answering affidavits. It was
contended that this happened on
29 September 2023 and with the
permission of Porrill. This is simply not true. TCL was not involved
in any copying that took place
under the auspices of Porrill on 29
September 2023. TCL copied the information in August 2023, before the
individual respondents
even resigned, and certainly Porrill was not
even in the picture at that stage. This obviously contrived attempt
by the individual
respondents to effectively legitimise the copying
of information is certainly an important factor to consider when
deciding that
was actually happened, was untoward.
[122] And
finally, what I must confess I find most strange, is that WA and
Carmel not only enter the
fray to oppose the application, but it is
actually Du Plooy, in his capacity as CEO of WA, that deposes to the
answering affidavit,
with the individual respondents only signing
confirmatory affidavits. In the many restraint of trade applications
I have decided
over the last five years at least, I have never seen
this happen. It certainly lends support to the contention that the
individual
respondents, as well as WA and Carmel, have at all times
acted in concert.
[123] All
the above, as established by the evidence, in my view paints a clear
picture of what transpired
in casu
. Leveraging off their
relationships with each other, Roux, Hill and De Kock devised a
stratagem to shave off a portion of the business
and goodwill of ADX
and move it to WA, as a first step in Roux and Hill becoming involved
in developing and growing the business
of WA. It was a significant
portion, involving in excess of 1900 clients with a portfolio value
of R2.5 billion. Roux then used
his leadership position to convince
all the other FA respondents, as well as his son-in-law Osmond, to
join him at WA. I am also
convinced that Hill was the one who
facilitated the Cate Town departures, also in concert with Roux. All
of them (save for Hill
whose departure was immanent) resigned on the
same day in a virtually identical manner. The support staff followed
along with them.
It is all too close-nit and concerted to be
coincidence. The time period just before resignation and during
notice was devoted
to collecting / copying confidential information
to take to the new business (WA). An office was arranged for this new
business,
in the form of the office occupied at the time by ADX. The
notice period was also used to notify clients of their departure,
relying
on the fact that considering the close working relationship
and relationship of trust between the FA respondents and their
clients,
these clients would follow, which is exactly what happened.
[124] In
the period between 1 October 2023 when the individual respondents
left ADX’s employment,
and December 2023 when interim relief
was obtained, ADX had completely lost 820 clients to WA (there was a
further 433 clients
only partly terminated their mandate with ADX).
This is a substantial loss of clients in a very short time, with the
only denominator
being the departure of the individual respondents.
This is surely indicative of a concerted effort, as all these clients
have to
be onboarded into WA
en masse
, and this surely will
necessitate support and resources from all involved. Added to that,
several of the broker change requests
submitted were identically
worded. The value of the client portfolios that have been lost is
just short of R800 million, which
is undoubtedly substantial.
[125]
I
have little hesitation in concluding that the aforesaid constituted a
flagrant violation of the restraints of trade and confidentiality
undertakings of the individual respondents, as applicable to each of
them in terms of their respective employment and / or restraint
agreements. But not only that, I believe that what happened, all
facts considered as a whole, is an attack on the goodwill of ADX
despite that goodwill being protected by the restraints of trade, so
that this goodwill can serve as a springboard for the immediate
growth of the business of WA and so also advantage of the individual
respondents who would be employed there. The following
dictum
in
Knox
D'Arcy Ltd and Others v Jamieson and Others
[41]
is illustrative:
‘…
Generally
speaking, the personal relationship which the applicants' salesman
builds up as indicated above with the manager or managers
of a target
business and which is calculated to predispose such a manager,
when persuaded that his business could benefit
from management
consultancy services, to engage the applicants to provide such
services appears to be of a confidential nature
and is an element of
a species of incorporeal property known as goodwill. Since the
salesman has acted as an employee and the relationship
is
confidential, this proprietary interest is not his own to do with as
he pleases. It belongs to his employer. After the salesman
leaves the employment of the applicant, he is not entirely free to
exploit his personal relationship with the managers of a target
business for his own benefit or the benefit of a third person, such
as a new employer, at least for such period as it would take
to build
such a confidential relationship anew. As it is sometimes put, he is
not free to use the goodwill gained for his former
employer as a
'springboard' with which to gain an advantage for himself, or
for a new employer, in unfair competition with
the first employer
whose property it is …’
The Court in
Knox
D'Arcy
concluded:
[42]
‘…
In my view, the reasoning
underlying the doctrine of the 'springboard' is not confined in
principle to confidential information
of a technical nature. It is in
principle equally applicable to compilations of confidential
information which take time, skill
and labour to
assemble: compare
Dun
and Bradstreet (Pty) Ltd v SA Merchants Combined Credit Bureau (Cape)
(Pty) Ltd (supra
).
These may include various kinds of confidential information
(compare
Meter
Systems Holdings Ltd v Venter and Another
1993
(1) SA 409
(W)
at
428D-430H) and in particular customer lists (if kept confidential)
and any particulars relating to customers or potential
customers (if
kept confidential) such as their specific requirements; and also,
in my view, any confidential special relationship
amounting to
goodwill which may have been developed in the course of acquiring
such confidential information …’
[126]
So,
what should be the result of all of this? Undoubtedly, and in my
view, the individual respondents should be prohibited (interdicted)
from in any manner communication with, transacting with, and / or in
any way soliciting the custom of and / or accepting business
from,
any of the clients of ADX and especially the clients that they
serviced with whilst employed with ADX.
[43]
The fact that ADX would be entitled to such relief, I believe, is
beyond contestation, especially considering the nature of the
industry, the nature of the duties of the individual respondents, and
the particular close working relationship and relationship
of trust
that existed between the individual respondents and the clients they
serviced.
[127]
But
what about the actual employment of the individual respondents with
WA? Ordinarily, I would have said that the mere employment
of a
financial adviser in the financial services sector with a competitor
would not infringe on a restraint of trade, provided
that adviser is
completely isolated from the client base of the former employer.
[44]
This is because a financial adviser has a specific skill, knowledge
and / or qualification that would attach to the person of the
financial adviser, and it may be unreasonable to enforce a restraint
of trade against the financial adviser to the extent of prohibiting
employment in the entire industry.
[45]
After all, what possible harm can accrue to the former employer if
that adviser takes up employment elsewhere and goes and finds
his own
and new clients in the course of that employment. But the case
at hand is entirely different, and necessitates a
different outcome.
The reason for this is because what happened in this case is nothing
less than unlawful competition on the part
of the respondents,
perpetrated against ADX. In
Pexmart
CC and Others v H Mocke Construction (Pty) Ltd and Another
[46]
the Court held that: ’…
There
is no closed list of acts that constitute unlawful competition
’,
however the Court added that the acts that are well known to
constitute unlawful competition included the unfair use of
a
competitor's fruits and labour, the misuse of confidential
information in order to advance one's own business interests and
activities at the expense of a competitor's, and the inducement or
procurement of a breach of contract. Considering the facts as
summarized above, these acts articulated in
Pexmart
supra
indeed occurred
in
casu
.
[128]
In
Phumelela
Gaming and Leisure Ltd v Gründlingh and Others
[47]
the Court held as follows:
‘
The question is
whether, according to the legal convictions of the community, the
competition or the infringement on the goodwill is
reasonable or
fair when seen through the prism of the spirit, purport and objects
of the Bill of Rights. Several factors are relevant
and must be taken
into account and evaluated. These factors include the honesty and
fairness of the conduct involved, the morals
of the trade sector
involved, the protection that positive law already affords,
the importance of competition in our economic
system, the
question whether the parties are competitors, conventions with other
countries and the motive of the actor …’
[129]
The
aforesaid being the applicable legal principles, a comparable example
of the application of those principles, to the facts
in
casu
,
can be found in
Van
Castricum v Theunissen and Another
[48]
.
In that case, the employer was an insurance broker comprising both
life and short-term insurance. The employee was a claims clerk
and
underwriter, and attended to claims and to underwriting matters.
In the execution of her duties, the employee made
use of a
handwritten telephone directory which contained the contact details
of the clients of the employer, and was also privy
to other
confidential information concerning existing clients of the employer.
The employee
then
joined a competitor of the employer as an administrative and
marketing assistant, and in joining the competitor, took the
handwritten telephone directory with her for use at the competitor.
The Court had the following to say about the conduct of the
employee
and the competitor in this regard:
[49]
‘…
What
is clear from the aforesaid, is that someone who saves himself the
trouble of going through the process of compilation of the
document,
even where it is compiled from information which is available to
anybody, such a person would be interdicted if
that information
had been obtained in confidence. The reason is simply that
confidential information may not be used as a springboard
for
activities detrimental to the person who made the confidential
information available. It would remain a springboard even when
all
the features have been published or can be ascertained by actual
inspection by any member of the public …
’
[130]
Another
apposite comparison can be found in the judgment of
Lumax
Energy (Pty) Ltd v Solastruct (Pty) Ltd
[50]
.
The following extracts from what transpired in that case, where the
Court found in favour of the employer and granted an interdict,
speaks for itself pertaining to the comparison to the case
in
casu
:
[51]
‘
Further to the
above requisites confidential information may not be used as a
springboard for activities detrimental to the person
who made the
confidential information available. Messrs Van Rooyen and
Robinson were Lumax's employees at the time that they
appropriated
Lumax's confidential and proprietary information. They were not only
bound to keep their employers' confidential information
confidential
but they had also bound themselves in contract to this effect.
Lumax at paragraphs 47,
48, 51, 52, 54-56 of the founding affidavit and paragraphs 37-39 of
the replying affidavit shows how its
confidential information is
imparted to its employees and preserved. The Second and Third
Respondents breached their undertakings
to their employer when this
information was copied and forwarded to third parties in order for
Solastruct to unlawfully compete
with Lumax.
Examples of the
Respondents' collaboration and collusion are: the email exchanges of
17 May 2021 wherein Mr Robinson provides Mr
Van Rooyen with Lumax's
confidential information for the benefit of Solastruct; a trail of
emails of 3 June 2021 sent by Mr Van
Rooyen to Solastruct and an
email from Mr Van Rooyen to other parties and entities making
business arrangements that would take
business away from their
employer; and the discovery after Messrs Robinson's and Van Rooyen's
laptop computers were seized and
assessed that Mr Van Rooyen had
deleted and removed all the information that Lumax had imparted to
him. These acts, among many
others, demonstrate the concerted efforts
by the respondents to act in unlawful competition against Lumax.’
[131]
In
De
Meyer v Property Competence Management (Pty) Ltd
[52]
the Court considered a situation where the employee left to join a
competitor, and a number of clients then cancelled with the
employer
using identical cancellation notices with these clients going over to
the competitor to be serviced by the employee. The
employee was also
privy to all the confidential information of employer relating to its
client base, contracts, pricing and
financial management
information. Considering
inter
alia
these facts, the Court held:
[53]
‘
It is clearly
established in South African law that it is unlawful for an employee
either to take his employer's information or
to use such information
to compete with him. The fact that the first respondent
in
van Castricum
had
left the employ of the applicant made no difference because the duty
to preserve such confidential information continues
to exist even
after the period of employment has terminated.
[7]
It
will be recalled that in the present case Clause 24 of the contract
of employment included an express undertaking not to
disclose any
confidential information to any third party both during the operation
of the contract and after its termination …’
The Court further
concluded as follows:
[54]
‘
The conduct of
Blueberry in using the information supplied to it by De Meyer
involved the commission of what might rightly be regarded
as a civil
wrong. While its conduct did not constitute a breach of contract, it
served as an inducement to De Meyer to breach his.
Its undertaking to
indemnify migrating clients for legal costs in the event of any
dispute arising with the respondent is a clear
indication that it was
consciously and deliberately engaged in enticing clients away from
the respondent; and was using the information
in possession of De
Meyer to achieve that end. The test of wrongfulness applied in such
an instance is one of fairness and honesty
having regard to the
boni
mores
and
the general sense of justice in the community.
[11]
A
combination of two or more persons wilfully to injure another in his
trade (by breach and inducement) will normally be unlawful,
and if it
results in damage, or may so result, should be actionable. …’
[132]
A
final apposite comparable example is the judgment in
TWK
Agri (Pty) Ltd v Botha and Others
[55]
which was an application to enforce a restraint of trade where
unlawful competition came into play. The Court came to the following
conclusion:
[56]
‘
It is common cause
that when the Applicant bought the business from the Seller, as going
concerned, that business was defined as
including short-term
insurance policies established and managed by the latter, so it is
the Book that forms part of the economic
value of the Applicant,
which the Applicant has approached this Court to protect such entity.
Furthermore, the Applicant and Seller
agreed on the confidentiality
clause of the clients, and the Seller was owned by the First
Respondent. Clearly, these parties were
aware that such a book was of
economic value, and without any doubt, this was useful in the
industry in which the Applicant operates.
The conduct of First
Respondent by approaching the Applicant wanting to buy some of the
business that she sold to the Applicant
via the Seller and,
immediately upon leaving the Applicant, approached some of the
clients of the Applicant, soliciting them that
they must join the
Competitor indicates that the motive of doing this was necessitated
by dishonesty. Therefore, this Court opines
that it will be unfair if
these rights are not protected as they seem to be integral in the
insurance business that the Applicant
is involved in.
It is the conclusion of
this Court that this interest is being threatened, based, among other
things, on the following reasons:
the Applicant clients, namely Smith
and Ndaba, were approached by the Respondents to solicit them to join
the Competitor, and their
is proof to that effect. The Applicant when
agreed with the Seller, which was owned by the first Respondent; some
of the names
in the Book are part of such agreement, and parties
agreed that it was going to be confidential when the First Respondent
decided
to leave; the Applicant indicated that they wanted to buy
part of the business back, which Ms Prinsloo did not agree to. The
Applicant
has presented evidence that it lost about 72 of its clients
immediately after the Respondents had left it. Moreover, in paragraph
21.9 of the founding affidavit stated that it has a direct loss of an
amount of R1 149.630.71 because of the conduct of the Respondents;
it
is this Court's conclusion that the Applicant has demonstrated that
there is a continuous harm which is substantial herein.
Under the
circumstances, this Court concludes that, indeed, there is a
continuous threat, and if they are not protected, such a
threat will
continue and harm it further.’
[133]
Returning
to the facts
in
casu
,
considered in the context of the aforementioned authorities, it must
first be considered that WA and Carmel are fierce and direct
competitors of ADX, and are not only directly involved in opposing
the application by ADX, but appear to be driving it, considering
that
the answering affidavits were deposed to by Du Plooy, with the
individual respondents only providing confirmatory affidavits.
It is
also apparent that WA and Carmel are well aware of the contract terms
of the individual respondents and that what was happening
could be
seen to be breach of those contracts, but have decided to nonetheless
support and facilitate such breach, despite knowing
what ADX’s
causes of complaint are.
[57]
This is the kind of ulterior motive substantiating the granting of
relief contemplated in
Phumelela
Gaming supra
.
[134] ADX
has not asked for relief against ADX and Carmel, and thus the
granting of any interdict against
WA and Carmel would not be
appropriate. However, the individual respondents cannot be allowed to
derive any benefit flowing from
the continuation of any kind of
relationship with Carmel / WA, and a complete prohibition of any
association between the individual
respondents and WA / Carmel as
contemplated by their restraints of trade, is certainly justified by
virtue of the acts of unlawful
competition that have been
perpetrated. This relief however does not include Osmond and Hill,
because Osmond is not subject to
such a restraint and the restraint
of trade of Hill in this regard expired on 30 November 2023.
[135] The
FA respondents did not behave in a forthright and honest manner. They
had received good money
from ADX for bringing their respective client
books into ADX. They however collectively decided to exit ADX and
take their client
books with them. They took a concerted effort to
copy all ADX’s confidential information prior to their
departure, in order
to utilize the same in their new employer, WA.
They were supported in their endeavours by WA. They even
appropriated, for the want
of a better description, the support
staff. They clandestinely did not directly request clients to leave
ADX and follow them, but
they clearly leveraged the close working
relationship and relationship of trust they had with these clients to
get them to leave,
which the clients subsequently did, in droves. In
the end, and out of 1918 clients previously serviced by the
individual respondents
(excluding Osmond) 820 left completely and 433
partly left. And it is not as if these clients left ADX to go
somewhere else, but
they left to join the FA respondents at WA, all
within a very short space of time. This is the kind of conduct that
must surely
fall foul of the ‘
honesty and fairness
’
consideration referred to in
Phumelela
Gaming supra
.
[136] Another
important consideration is the fact that contractually, the FA
respondents had agreed
with ADX that there existed an option, should
they decide to leave ADX, to effectively purchase their client book.
A formula to
determine the purchase price was agreed to up front. In
this case, ADX, when confronted with the mass resignations, clearly
appreciated
something was up, and common sense obviously informed it
that the clients serviced by the individual respondents was an open
target.
It then specifically informed the FA respondents of the
option to purchase their client book at the agreed formula. ADX
quantified
the purchase price by way of application of the agreed
formula and individually offered to each of the FA respondents the
option
to purchase it at that price. Accordingly, what ADX was
willing to do was to consider disposing of part of its goodwill
(being
a business asset) to the FA respondents, in a legitimate and
agreed manner. Unfortunately, it was spurned by the FA respondents.
[137] In
fact, my view is that the reaction of the FA respondents to these
legitimate offers was nothing
short of
mala fide
. It is only
at this point that each of them individually sends a basically
identical answer to ADX, and for the first time offering
a plethora
of reasons to the effect that it was ADX’s fault that they
left. More information was asked for to assess the
offer and this was
provided. Contrived obstacles by the FA respondents were placed in
the way of them either outright accepting,
or at least rejecting, the
offer to buy their clients books, which left the issue, in essence,
deflected. I believe there was a
good reason on their part for this
conduct. This reason is why should the FA respondents pay for a
client book when they can take
it for free. I am convinced that this
is what they intended to do when they all left
en masse
to WA.
This is the kind of behaviour that would offend public morals as
contemplated by the authorities referred to above.
[138]
Finally,
it is not just the individual respondents and their clients that
departed. It is also the entire support structure dedicated
to
servicing those clients and managing the practices of the individual
respondents, that departed with them.
[58]
Added to that, even the physical Gqeberha office is thrown into the
equation and moved to WA.
[139]
All
considered, and if the individual respondents (save for Osmond and
Hill) are allowed to remain in the employment of WA, they
could still
benefit from the springboard provided by the events as set out above.
They will still reap benefits from what is nothing
else but unlawful
conduct. It would also be impossible for ADX to police, even with a
trade connection solicitation prohibition
in place, whether the
individual respondents would continue to share confidential
information about clients with their colleagues
at WA, or otherwise
assist them with recruiting such clients behind the scenes. The
individual respondents have shown that they
lack integrity and that
that they simply cannot be trusted. It once again cannot be ignored
that the objective of WA is to grow
its business, which is why it
sought to employ the individual respondents. Without any clients in
tow, the individual respondents
would have little value to WA, which
exacerbates the risk to ADX if they remain employed at WA. It cannot
be expected of ADX to
sit by, cross its fingers, and hope the
individual respondents behave honourably, especially where it had
been shown, in my view,
that they do not so behave. In
Reddy
v Siemens Telecommunications
[59]
the Court held:
‘
I agree with the
remarks of Marais J in
BHT Water
:
'In my view, all that the
applicant can do is to show that there is secret information to which
the respondent had access, and which
in theory the first respondent
could transmit to the second respondent should he desire to do so.
The very purpose of the restraint
agreement was that the applicant
did not wish to have to rely on the bona fides or lack of retained
knowledge on the part of the
first respondent, of the secret
formulae. In my view, it cannot be unreasonable for the applicant in
these circumstances to enforce
the bargain it has exacted to protect
itself. Indeed, the very ratio underlying the bargain was that the
applicant should not have
to content itself with crossing its fingers
and hoping that the first respondent would act honourably or abide by
the undertakings
he has given …’’
[140]
In
the end, t
here
is accordingly no doubt that
in
casu
,
ADX’s protectable interests have been breached. It has lost a
significant part of its business and goodwill in Gqeberha
and Cape
Town. It has also lost a vast amount of clients and revenue. The
business of a competitor (WA), as resourced by the individual
respondents and their accompanying support staff, has been bolstered
by in essence leveraging off the business of ADX and unlawfully
attributing its goodwill. ADX’s confidential information has
been severally compromised, and will be continued to be compromised
if the individual respondents remain associated (including
employment) with WA. The individual respondents have shown that they
cannot be trusted, and clearly have it in mind to pursue and transact
with the clients they dealt with the course of their employment
with
ADX. These clients, considering the relationship of trust and
confidence they developed with the FA respondents, are carried
in the
pocket of the FA respondents.
[60]
It
is quite clear that ADX cannot be expected to trust the
bona
fides
of the individual respondents to not pass on all their trade
connections and knowledge of confidential information of ADX on to
WA, considering the very competitive nature of the industry, the
similarity of services, and the limited availability of suitable
clients. In
Medtronic
(Africa) (Pty) Ltd v Kleynhans and Another
[61]
,
the Court held as follows:
‘…
It is
also not incumbent upon Medtronic to enquire into the bona fides of
Kleynhans and demonstrate that he is mala fide before
being allowed
to enforce its contractually agreed right to restrain him. In those
circumstances, all that the Medtronic needs to
do is to show that
there is a trade connection Kleynhans could exploit should he desire
to do so. The very purpose of the restraint
agreement is that
Medtronic did not wish to have to rely on the bona fides or lack
thereof on the part of Kleynhans when he left
their employ.’
[141]
It
follows, all considered, that ADX has made out a proper case for the
final relief sought in its notice of motion (as amended),
considering
its legitimate protectable interests which has been violated by the
individual respondents. That relief would include
isolating the
entire client base from the individual respondents, as well as
isolating the employees of ADX from them.
[62]
It also includes prohibiting any continuing relationship between the
individual respondents and WA, including employment.
[63]
And finally, it is necessary to impose a positive obligation on the
individual respondents to protect the confidential information
of
ADX. The only question that now remains is whether the respondents
can establish a defence which would scupper the granting
of such
relief, and that is the question I turn to next.
The respondents’
defences
[142] The
defences put forward by the respondents can be summarized into five
basic categories. The
first category is a reliance on the
exceptio
non adimpleti contractus
, which, according to the respondents,
would find application in this case and would excuse them from
complying with the restraint
of trade, effectively rendering it
unenforceable. The second category is that they were compelled to
resign because of the conduct
of ADX, which included a FAIS
investigation, the excessive charging of client fees, and an
intolerable (hostile) working environment.
The third category is that
there was simply no direct evidence that the individual respondents
had copied and disseminated confidential
information, and / or
solicited the custom of any clients. Fourthly, there is a contention
that the individual respondents had
provided proper undertakings, up
front, that should have been accepted and which removed the need for
any enforcement of the restraints
of trade. And finally, it is said
that the restraints were selectively applied by ADX.
[143]
I
will start with the defence relating to an alleged lack of direct
evidence of breaches by the individual respondents. I have no
hesitation is rejecting this defence as being entirely without
substance.
Res
ipsa loquitur
– the facts as summarized above speak for themselves, and most
of these facts are simply undeniable. I am convinced that
either
directly, or indirectly, the individual respondents compromised the
confidential information of ADX for their own purposes
and benefit,
and to the detriment of ADX. And considering the extensive exodus of
clients moving directly to the individual respondents
at WA in a
short space of time immediately following the individual respondents’
departure, this establishes, at the very
least, indirect
solicitation. But even if the respondents are able to throw up some
doubt, it is never about only actual breach.
It is also about the
risk created to ADX, and the need to mitigate such risk. In this
context, it is not even necessary to show
that the individual
respondents actually exploited trade connections. All that has to be
shown is that they could.
[64]
As succinctly said in
Den
Braven SA (Pty) Ltd v Pillay
and
Another
[65]
:
‘
It
is not in my view necessary for an applicant in this situation to
winnow the wheat of trade connections and customer contact
from the
chaff of other factors that may influence purchasing decisions. It
suffices for the applicant to show that trade connections
through
customer contact exist and can be exploited by the former
employee if employed by a competitor. …
’
[144]
Similarly,
and where it comes to confidential information, it is similarly not
necessary to show that the confidential information
the individual
respondents had access to had indeed been conveyed to third parties,
such as WA, or had been utilized in competing
with ADX. All that must
be shown is that the individual respondents had access to that
information, and that there exists a risk
that it could be
appropriated, disseminated, and then used.
[66]
Once again, it is not about what had been done by the employees, but
rather what could be done by them. In
IIR
South Africa BV (Incorporated in the Netherlands) t/a Institute for
International Research v
Tarita
and
Others
[67]
it was held:
‘
In short, the
applicant has endeavoured to safeguard itself against the
unpoliceable danger of the first and second respondents
communicating
its trade secrets to a rival concern after entering their employ. The
risk that the respondents will do so is one
which the applicant does
not have to run and neither is it incumbent upon the applicant to
inquire into the
bona fides
of the first and second
respondents and demonstrate that they are
mala
fides
before being allowed to enforce its contractually
agreed right to restrain the first and second respondents from
entering
the employ of a direct competitor.’
[145]
A
related argument presented by the respondents is that they did not
solicit the clients, but it was the clients who of their own
accord
and for their own reasons decided to follow them. In my view, this is
an untenable proposition, and if ascribed to, would
render most trade
connection restraints in especially the service sector (industry),
completely valueless. Simply described, all
that an employee would
have to do to defeat a restraint is to say it was not me, but it was
the client, and it will be virtually
impossible to prove the
contrary, especially considering that the client obviously would
support the employee. In fact, this kind
of situation is still
regarded as client solicitation, in the form of ‘
indirect
solicitation
’.
[68]
In
Experian
SA (Pty) Lyd v Haynes and Another
[69]
the Court in fact considered the argument that the clients instigated
the contact and not the employee, and thus it did not amount
to
solicitation, and had the following to say in this regard:
‘…
This
argument is devoid of merit: it has been held that it makes no
difference whether or not an employee contacts the customers
of his
ex-employer or whether such customers contact him. Both forms of
conduct amount to solicitation of the customers of the
ex-employer,
which is impermissible …’
[146]
Also
apposite is the following dictum
in
Brenthurst supra
:
[70]
‘…
There is
little doubt, in my mind, that the appropriate clandestine influence
dispensed by the first respondent when contacted by
such client, will
direct the client to simply tell the applicant he or she wants
nothing to do with the applicant, and that client
is then free to
come to the first respondent. This cannot be acceptable, and
undermines the very purpose of the restraint. Whilst
it is true that
clients can contract with any wealth manager and / or adviser they
wish, the fact remains that the first respondent
simply cannot accept
the custom of such clients, if they come from the applicant. He must
be completely insulated from the clients,
so as to give the applicant
a fair chance to retain such business. I am in any event convinced
that if the client knows that the
first respondent is not allowed, by
Court order, to advise him or her or manage his or her portfolio,
that client would not leave
the applicant.’
[147]
In
casu
,
the restraint of trade nonetheless makes specific provision for
indirect solicitation. That being so, and even if the individual
respondents were approached by the clients they serviced at ADX, of
those clients’ own accord, and initiated no contact themselves
with those clients, it simply does not matter. What the individual
respondents needed to do was to turn those clients away, and
inform
those clients that they cannot be assisted because of the restraint
of trade.
[71]
The individual
respondents undoubtedly did nothing of the sort. As said in
Slo-Jo
Innovation (Pty) Ltd v Beedle and Another (2)
[72]
:
‘
Ms
Beedle is now employed by a direct competitor of the applicant and
she is manifestly in a position where she could exploit and
utilise
the confidential information and trade connections she had obtained
whilst in the applicant’s employ to the advantage
of Flavourpro
and to the applicant’s detriment. In fact, Ms Beedle’s
conduct displayed a brazen breach of terms she
contractually agreed
to but subsequently elected to disregard and violate, as if she never
agreed to them
.’
This is certainly the
situation with the individual respondents. The defence of there being
no evidence of a breach consequently
just does not have any merit.
[148]
This
brings me neatly to the next defence, being the
exceptio
non adimpleti contractus
(the
exceptio
).
The first problem I have with this defence is that the
exceptio
was not specifically pleaded by the respondents in any of the
answering affidavits.
[73]
In
order for the respondents to rely on the
exceptio
,
it had to be pleaded, and in particular, it needed to be specifically
said that the individual respondents were not required to
perform
their side of the bargain under the restraint and / or employment
agreements due to ADX’s breach, with refence as
to what was the
breach. The respondents did not do this. If the
exceptio
is not properly pleaded, it should not be considered. As held in
Telcordia
Technologies Inc v Telkom SA Ltd
[74]
:
‘…
A
defendant who wishes to raise the
exceptio
non adimpleti contractus
on
the basis of an incomplete tender must particularise in the plea in
what respects performance was defective …
’
For this reason alone,
the respondents’ reliance on the
exceptio
must fail.
[149] But
even if the respondents’
exceptio
defence as argued is
considered, it is my view that it is lacking in merit. I was informed
by the respondents’ counsel that
the defence is articulated in
paragraph 42 of the respondents’ answering affidavit.
Considering what is contained in this
paragraph, the respondents’
case is based on an alleged violation, by ADX, of the individual
respondents’ ownership
participation agreements. I have
summarized the facts relating to these agreements earlier in this
judgment. Of importance to the
respondents’
exceptio
defence is the contention that the ownership participation
agreements, the employment agreements, and the restraint agreements,
are reciprocal, and should be considered in conjunction with one
another. That being so, the case then goes that most of the
individual
respondents (save for Woodhead) have qualified for the
shares, have paid in full for the same, and thus a share certificate
needed
to have been issued to them, which was never done. It is also
contended that by virtue of the share, the individual respondents
were entitled to receive dividends, but this was never paid. And
lastly, ADX has failed to determine the dividend pool, so the
individual respondents cannot get dividends. Therefore, so the
argument goes, ADX failed to honour the ownership participation
agreements, and because this was reciprocal to the individual
respondents’ obligations under the restraints of trade and
confidentiality undertakings, they were thus excused from fulfilling
these obligations, and this rendered the restraints of trade
and
confidentiality undertakings unenforceable. But is there substance in
this argument? For the reasons to follow, I think not
at all.
[150]
The
exceptio
was succinctly described in
Thompson
v Scholtz
[75]
as follows:
‘…
The
defendant's defence was the so-called
exceptio
non adimpleti contractus
('the
exceptio
').
It is a defence entitling a party from whom performance is demanded
to withhold it until the party demanding performance has rendered
or tendered his own performance; it arises where performance and
counter-performance are contractually dovetailed and the party
demanding performance is to render his own performance either in
advance of or in conjunction with performance from the other side. As
such it is a stalemate defence to a claim
ex
contractu
and
not a remedy for breach of contract …
’
[151]
In
Smith v
Van den Heever and Others
[76]
the Court summarized the legal principles applicable to the
application of the
exceptio
as follows:
‘…
As stated
in the title 'Contract' in 5(1)
LAWSA
2 ed para
210, in the case of reciprocal contracts, one party undertakes
to perform specifically in exchange for a particular
counter-performance by the other. In such cases the principle of
reciprocity applies: the first party is not entitled to demand
counter-performance from the other party unless the first party has
himself or herself performed, or is prepared to perform,
as the
case may be.
In
Motor
Racing Enterprises
the
court laid stress on the following relevant principles: First,
the
exceptio
presupposes
the existence of mutual obligations that are intended to be performed
reciprocally, and the parties' intention
is to be sought primarily in
the terms of their agreement. Second, interdependent promises
are prima facie reciprocal. Third,
the
exceptio
is
often a temporary defence raised in order to compel the other
contracting party to perform unfulfilled obligation(s), but
only if
defective performance of an
obligatio
faciendi
can
still be remedied. It is otherwise a complete defence. Fourth, the
applicability of the
exceptio
is
(subject to the
de
minimis
principle)
not dependent on the degree of non-performance
.’
[152]
It
is of course true that an employment contract
per
se
, is
indeed a reciprocal contract in respect of which the
exceptio
could find application.
[77]
It
therefore can feasibly be argued that in the case where an employer
does not comply with its obligations under the employment
contract,
such as for example failing to make statutory payments under the
Basic Conditions of Employment Act (BCEA),
[78]
the
exceptio
can be invoked by the employee as a defence to a restraint of
trade.
[79]
But
in
casu
,
the obligations that rested on ADX that is alleged to have been
breached is not found in the employment contract. It is found
in the
separate ownership participation agreements.
[153]
According
to the respondents, the ownership participation agreements should be
read in conjunction with the employment and restraint
agreements, as
these forms one holistic ‘
package
’
in terms of which the individual respondents were employed. This is a
competent approach to adopt, as it is not necessary
that the
reciprocity be established in a single agreement, and it can be
gleaned from multiple agreements, read together. As decided
in
Miloc
Financial Solutions (Pty) Ltd v Logistic Technologies (Pty) Ltd and
Others
[80]
:
‘
The
fact that the overall transaction deposed to by the eleventh
respondent was given effect to by the conclusion of three separate
agreements will not in itself exclude the operation of the principle
of reciprocity, which can still apply if 'the terms of the
agreements
considered as a whole clearly evince the intention that there would
be reciprocity between the obligations undertaken
in
each':
Wynns
Car Care Products (Pty) Ltd v First National Industrial Bank Ltd
1991
(2) SA 754 (A)
at
758C - D. …’
[154] I
have difficulty in accepting the contention that even when
considering the ownership participation
agreements and the restraint
of trade and employment agreements as whole single package, it
establishes the kind of reciprocity
necessary for the successful
invocation of the
exceptio
. I am satisfied that in this case,
the ownership (and all the corresponding benefits) brought about by
the ownership participation
agreements, was not a condition of
employment of the individual respondents, and did not create the kind
of reciprocity vis-à-vis
the restraint obligations the
individual respondents are seeking to rely upon. There are a number
of reasons for this, which now
follow.
[155]
First
and foremost, there is no correlation between the ownership
participation agreements, and the restraints of trade as contained
in
the restraint of trade and employment agreements. The bi-lateral
(reciprocal) obligations that arise out of the ownership
participation
agreements is that the individual respondents on the
one hand must settle the purchase price for the share and comply with
the
conditions in those agreements for accrual of the share, whilst
ADX on the other hand must then issue a share certificate. Similarly,
and where it comes to distribution of dividends, ADX must declare a
profit pool, and then the individual respondents would be entitled
to
dividends. The enforcement of any restraint of trade upon the
departure of the individual respondents does not even feature
in the
equation. It is thus not a situation, as required by the
exceptio
,
that performance of the one is dependent on performance of the other.
In
Botha
and Another v Rich NO and Others
[81]
the Court held:
‘
For
the principle to operate the obligations of the parties must be
reciprocal in the sense that performance of the one cannot be
enforced without performance of the other …
’
[156] Secondly,
the shares that would accrue to the individual respondents and any
dividends they would
be entitled to in terms thereof have nothing at
all to do with their employment, the duties they are required to
fulfil, the commissions
/ salaries they earn, and other conditions of
employment. To describe it as simply as possible, the ownership
participation agreement
allows for two things. It allows the
individual respondents the opportunity to obtain ownership in the
greater group (encompassing
the whole business), which ownership must
be paid for by the individual respondents. Then it also allows the
individual respondents
to exit the business with their practices,
provided they pay for the same by way of a purchase price determined
in terms of an
agreed formula. But even if the individual respondents
exit with their practices, after having obtained their shares, then
the
individual respondents concerned will still retain their shares,
which can separately be disposed of. It is abundantly clear, to
me,
that this arrangement exists entirely outside the employment
relationship, and all the duties and obligations that may arise
between the parties in terms thereof, like the restraint obligation.
[157]
Thirdly,
and even now, despite these current proceedings, if there is indeed a
breach of the ownership participation agreements
as alleged by the
individual respondents, they have a contractual claim to remedy the
same, by way of demanding the issuing of
their share certificates and
payment of their dividends. It simply makes no sense to me that as a
result of not getting what earned
under the ownership participation
agreements, the individual respondents would be entitled to in
essence materially erode, which
is what a violation of the restraints
of trade would cause as aptly illustrated by the facts of this case,
the very value of that
which they have paid for and from which their
dividends accrue. This surely could never have been contemplated by
the parties.
But even if it can be said that there exists reciprocity
in this case that could possibly excuse the individual respondents
from
compliance with the restraints, then it would result in a
complete injustice to ADX, as it would be significantly prejudiced as
a result of a then indefensible material erosion of its goodwill, for
which it paid good money to the individual respondents to
create,
whist still being liable to the individual respondents for their
shares under the ownership participation agreement. This
kind of
injustice would in my view justify the non-application of the
exceptio
in these circumstances. In
Botha
supra
[82]
the Court said:
‘…
To the extent that the
rigid application of the principle of reciprocity may in particular
circumstances lead to injustice, our
law of contract, based as it is
on the principle of good faith,
[64]
contains
the necessary flexibility to ensure fairness. In
Tuckers
Land and Development Corporation
it
was pointed out that the concepts of justice, reasonableness and
fairness historically constituted good faith in contract.
The
principle of reciprocity originated in these notions. This
accords with the requirements of good faith …’
[158] And
finally, upon being confronted by ADX about violations of their
restraints of trade, the
individual respondents did not once answer
and say that if ADX complied with the ownership participation
agreements, they would
comply with their restraints of trade.
[159]
An
apposite example comparable to the case
in
casu
can be found in
Ese
Financial Services (Pty) Ltd v Cramer
[83]
.
In finding that reciprocity was not established, the Court considered
the following:
[84]
‘…
It is
true that in terms of the contract between the parties, as set forth
in the written instructions, it was intended that,
as long as
plaintiff's authority remained unrevoked (unilateral cancellation
being provided for in clause 8), it (plaintiff) should
have
carte
blanche
in the management of defendant's investment
portfolio. It was given unfettered powers to buy, sell or exchange
securities
(clause 3) and defendant was debarred from in any way
interfering with or obstructing plaintiff in the carrying out of
its
decisions (clause 5). It was plaintiff's function to provide
analysis, research and judgment in the selection of the securities
for investment and to take the appropriate decisions on defendant's
behalf (clause 5). It is common cause, for the purpose of these
proceedings at any rate, that plaintiff was obliged to exercise
skill and judgment in the performance of its contractual obligations.
As consideration therefor plaintiff was to be paid, in advance, a
management fee of R240 and in addition it was to receive the
benefit
provided for in clause 6. This clause makes it clear that the
objective of this management scheme is to obtain capital
appreciation
on the investment portfolio at the rate of 10 per cent per
annum. It is significant, however, that it is expressly
stated in
clause 6 that plaintiff's right to receive what is in effect a bonus,
represented by a one-sixth share of any capital
appreciation in
excess of the 10 per cent aimed at, is in consideration of the
planned objective being achieved - not upon the
satisfactory
performance by plaintiff of its duty of management. Moreover, it
is clear that, as pointed out by Mr.
Comrie
, the
achievement of the planned objective and the satisfactory performance
by plaintiff of its obligations are by no means the
same thing.
Admittedly the latter may, under certain circumstances, contribute to
the former, but this will not necessarily be
the case. In view of the
vagaries of the stock market and the wide range of influences,
outside the control of the individual
investor, which cause
fluctuations in share prices, the attainment of the investment
objective contemplated by the parties may
well be only remotely
linked with the activities of the plaintiff. The objective might be
achieved despite supine inactivity or
inefficient maladministration
on plaintiff's part; or alternatively, despite perfect efficiency in
administration, the investment
results might be a dismal
failure. The plain wording of clause 6 is to the effect that in the
event of a ten per cent capital appreciation
being exceeded plaintiff
becomes entitled to a one-sixth bonus, and it is difficult to see
how, in the face of the clear language
of the contract, payment of
the bonus can be resisted where such capital appreciation has in fact
been achieved. Had the parties
intended the payment of the bonus to
depend, as a precondition, not only upon the achievement of the
required capital appreciation
but also upon the satisfactory
performance by plaintiff of its duty of management, then one would
have expected the contract to
have reflected this in clear terms. …’
[160] In
sum, I am satisfied that there is no reciprocity between the
ownership participation agreements
and the employment and restraint
agreements. They are separate from one another. The performance of
the one is not dependent on
the performance of the other. There
exists no obligation on ADX to perform under the ownership
participation agreements in order
to seek enforcement of the
restraints of trade against the individual respondents. If that would
have been the case, the agreements
would have so provided, for
example like the restraint payments made to the individual
respondents specifically being linked to
the restraints of trade
themselves. The restraints of trade are conditions of employment of
the individual respondents, whilst
the rights accruing to them under
the ownership participation agreement are not. And finally, the
application of the
exceptio
in this case would result in an
injustice to ADX, considering all the circumstances of this case. I
am convinced that reliance
on the
exceptio
was nothing else
but
ex post facto
clever lawyering to try and escape the
consequences of the restraints of trade. The
exceptio
defence
accordingly fails.
[161] This
brings me to the case of the alleged hostile working conditions,
compelling the individual
respondents to leave. I am convinced this
case has been contrived. I find it inexplicable that employees like
the individual respondents,
considering what they do and how they
earn their living, would not lodge formal complaints about all the
issues they now complain
of far earlier. As said, there is no
evidence of any formal grievance ever being filed. In fact, and
shortly before his own resignation,
Hill expressed the view that
working relationship in the executive team was good. Insofar as there
are complaints about the management
style and behaviour of Van
Schoor, most of the individual respondents did not even deal with Van
Schoor or report to him. The resignation
letters of the individual
respondents make no refence to intolerable working conditions. The
allegation first comes up when ADX
demand undertakings from the
individual respondents. And as touched on above, it is not lost on me
that the articulated intolerable
working conditions are expressed an
identical fashion by each of the individual respondents, despite the
allegation that they were
acting independently from one another.
Surely, not all of them would experience exactly the same in this
regard.
[162] There
is an allegation that clients were being charged too much in fees,
that the individual
respondents were not happy with, which also
compelled them to leave. Significantly, there is no evidence of any
client complaint
in this regard. I must confess that I find these
alleged altruistic motives of the individual respondents to be rather
opportunistic.
At the risk of seeming cynical, it is my view that
financial advisers are principally in it for the money, and the more
commissions
they can legitimately earn, the better. I cannot see that
a financial adviser would resign because a client is paying too much
in commissions / fees, and especially if this has been in place for
some years. And if the intention was not to poach the clients,
it
means that those clients would stay behind in ADX and would still pay
the same, so how can the individual respondents leaving
solve this
problem. I believe this entire issue was contrived to paint an
untoward picture of how ADX conducts business, and so
perhaps escape
the restraint of trade.
[163] Another
issue in this regard is the pending FAIS investigation. It is
undisputed that it exists,
but it is in its infancy and is pending.
There is as yet no outcome that can in any way tarnish the reputation
of ADX and its financial
advisers. Further still, the
investigation itself and the outcome thereof are by regulation
confidential. There is no evidence
of any client complaint or concern
as a result of this investigation. I cannot see how this would
legitimately motivate the individual
respondents to abruptly leave
employment because their good names and reputation may be tarnished.
In my view, it is another instance
of contrived
ex post facto
defence creation.
[164] But
even if it can be said that the conduct of ADX was such so as to
render continued employment
intolerable, for the reasons advanced by
the respondents, it simply cannot serve as a legitimate defence to
the enforcement of
the restraints of trade. In other words, the
circumstances why the individual respondents may have left is of no
moment in deciding
whether or not to enforce their restraints of
trade and confidentiality undertakings.
[165]
In
Reeves
and Another v Marfield Insurance Brokers CC and Another
[85]
the Court said:
‘…
The
legitimate object of a restraint is to protect the employer's
goodwill and customer connections (or trade secrets) and the
restraint accordingly remains effective for a specified period (which
must be reasonable) after the employment relationship
has come
to an end.
The need for the protection exists therefore
independently of the manner in which the contract of employment is
terminated and even
if this occurs in consequence of a breach by the
employer
….' (emphasis added)
[166]
The
above approach adopted in
Marfield
Insurance supra
was
similarly adopted in
Document
Warehouse (Pty) Ltd v Truebody and Another
[86]
where the Court held:
‘
It is common cause
that Truebody was dismissed from the applicant's employ after a
disciplinary enquiry. In my view, her dismissal
does not influence
the enforcement of the restraint. She is to be held to its terms that
"the termination of the employee's
employment for any reason
whatsoever shall not affect the operation of any provisions of this
agreement".’
And then this Court
followed suit in
SPP
Pumps supra
[87]
where it was said:
‘
Similarly the
issue of the alleged constructive dismissal has no relevance to the
consideration of whether the applicant has a proprietary
interest
which deserves protection. …’
[167]
The
aforesaid puts paid to the respondents’ defence that the
restraint of trade should not be enforced as a result of alleged
intolerable working conditions, breach of contract or other similar
conduct on the part of ADX, causing the departure of the individual
respondents. In sum, and because a restraint of trade is geared at
protecting the employer's proprietary interest after the employee
has
left the employer's employment, it exists independently from the
cause of the termination of the employment of the employee,
and any
cause of action relating to it.
[88]
But in any event, and on the facts, I do not believe that any of
these alleged causes of complaint are justified or have substance.
This defence thus also fails.
[168]
The
next defence is the issue of the undertakings purportedly provided by
the individual respondents. The issue of undertakings
provided in the
context of restraint of trade covenants was dealt with in
Dot
Activ (Pty) Ltd v Daubinet and Another
[89]
,
as
follows:
‘…
I
appreciate and accept that there is no obligation on an employer such
as the applicant to have to accept undertakings provided
by an
already errant employee that has acted in a manner which the
applicant considers to be breach of the restraint. These undertakings
often ring hollow, are often made after prejudice has already
accrued, and are ordinarily unpoliceable. It has been made clear
that
an employer cannot sit by and cross its fingers and hope that the
employee would act honourably in complying with undertakings
where
the employee has already shown he or she cannot be trusted …’
The Court went further
and said that undertakings provided: ‘…
cannot
be a conclusive defence in itself, and would simply be a factor
forming part of the reasonableness evaluation in order to
decide
whether to enforce the restraint, so therefore the provision of the
undertakings cannot per se defeat the enforcement of
the restraint
…
’
[90]
.
The Court however concluded:
[91]
‘
,,, although it
can be said that in general the provision of undertakings is no
defence to a restraint of trade being enforced,
it is my view that it
cannot always hold true that undertakings have no value and can never
serve to defeat a case of breach of
a restraint. In my view, a
requirement of ‘
reasonableness
’ can never be
satisfied by such a proposition. There may be instances where the
providing of an undertaking would serve to
establish that there is no
breach of a restraint. There can be no hard and fast rules as to when
this will be appropriate, and
there must be a complete conspectus of
all the facts, in the context of whether the protectable interests of
the party seeking
to enforce the restraint would still be at
sufficient risk despite the undertakings provided. In my view, and in
this regard, much
will be dependent upon the nature of the competing
businesses, the kind of information at stake, the position (duties)
of the employee
with the competitor, whether the competitor itself
makes common cause with the undertakings, as well as the conduct of
the employee
and the competitor associated with the employee taking
up employment with the competitor.’
[169] Do
the undertakings provided by the individual respondents then stack up
against these principles,
in order to qualify as acceptable
undertakings? First the good. At least WA and Carmel made common
cause with the undertakings
provided and supported the same. But then
there is the bad, which in this case is overwhelming. It starts with
the wording of the
undertakings themselves. These undertakings to do
not even come close to fulfilling the obligations imposed by the
restraint covenants.
With particular reference to the issue of trade
connections, the undertakings only relate to not making a ‘
direct
or explicit request for the transfer of any clients
’ and
‘
not to advise clients to divest any investments
’
from ADX. These undertakings do not include indirect solicitation,
which has happened and is far more likely to happen going
forward. It
also does not protect against the leveraging of client relationships
without direct solicitation, as actually happened
in this case. The
phrase ‘
divest
’ is also so vague and
non-descriptive, that it cannot cover the specific obligations of not
communicating and transacting
with, and soliciting the custom of
clients. In short, the individual respondents did not undertake to
comply with their contractual
obligations as they specifically read.
Instead, they sought to substantially water down the obligations by
re-writing them. Considering
all that happened in this case, I
believe these undertakings was deliberately worded in such fashion to
create a loophole so that
the individual respondents could simply
continue with what they had been doing, under the guise of having
given an undertaking.
This is not
bona fide
conduct.
[170] Next,
the undertakings were not voluntarily given from the outset, so to
speak. Before the individual
respondents even finally departed
employment, they were asked to provide undertakings, which request
they did not even bother to
answer. It is only when litigation was
threatened after they left, that the individual respondents presented
the watered-down undertakings.
[171] But
what must be fatal to any undertaking in this case is what actually
happened. There was clearly
a pre-planned hijacking of a part of the
business and goodwill of ADX. The respondents perpetrated an act of
unlawful competition.
There was a massive loss of clients, to the
individual respondents, at their new employer (WA). The respondents
sought to rely
on several false and / or unsustainable defences in
trying to escape the consequences of the restraints of trade. There
was even
the brazen act of inserting an external hard drive into the
ADX server and copying the client database for later use. And
finally,
the individual respondents need the clients in order to earn
a living, considering that the very intention was for them to move
to
WA with their client bases. All of this must surely show, without
much doubt, that the individual respondents cannot be trusted
to
comply with any undertaking. It is clear that such undertakings will
not diminish the substantial risk to ADX’s business
and
goodwill.
[172] For
all the reasons as set out above, ADX was well within its rights and
not susceptible to any
legitimate criticism for refusing to accept
the undertakings provided by the individual respondents in this case,
and instead persisting
with the application. The undertakings thus
cannot serve as a valid defence, which, just like the other defences,
falls to be rejected.
[173]
Finally,
there is the issue of the purported selective application of the
restraints of trade. In my view, this issue can be decided
on the
same basis as deciding inconsistency in the instance of disciplinary
sanctions meted out to employees.
[92]
Applying such principles, it is my view that in order to sustain the
defence, the respondents needed to provide sufficient evidence
to
establish a proper like for like comparison between the individual
respondents and other former employees that were not subjected
to
restraint enforcement. It also needed to show that ADX acted mala
fide, arbitrarily or capriciously in seeking to enforce a
restraint
against them, but not against others. And finally, a value judgment
must always be exercised.
[174]
In
casu
, there was simply not sufficient evidence provided by the
respondents to conduct a like for like comparison. Each case must
always
be decided on its own merits. There may be instances where
enforcement of a restraint would not be appropriate, for example
where
the risk to the employer is properly mitigated. It also cannot
be said, also because of a complete lack of evidence in this regard,
that ADX acted in a
mala fide
or arbitrary manner even if it
accepted that other employees should have been met with an
enforcement of the restraint of trade,
but was not. However, the most
critical component in this case lies in the value judgment.
Considering what happened in this case,
the individual respondents
should not be allowed to escape the consequences of the restraints of
trade, even if ADX may have been
wrong in not enforcing the restraint
of trade against other. In the circumstances, the defence relating to
selective enforcement
of the restraints has no substance.
[175] Accordingly,
all the defences raised by the respondents in opposition to the
enforcement of the
restraints of trade and confidentiality
undertakings against the individual respondents must fail. It follows
that there is no
legitimate cause of reason for these not to be
enforced against the individual respondents. ADX has a legitimate
protectable interest,
which has been violated by the individual
respondents.
Other restraint
considerations
[176]
Where
it comes to the quantitative and qualitative weigh off to be
conducted, the Court in
Plumblink SA
(Pty) Ltd v Legodi and Another
[93]
summarized the factors to be considered, being (1) the scope and
period of the restraint;
[94]
(2) whether the employee was possessed of the skills, expertise,
qualifications and experience before joining the employer;
[95]
(3) the nature of the industry;
[96]
and (4) the ability of the employee to secure gainful employment
elsewhere. A shorter restraint and properly limited geographical
area
(if applicable) would mitigate in favour of enforcement, whilst an
unduly long and broad restraint would mitigate against
it.
[97]
It must also be considered whether the enforcement of the restraint
would go further than necessary in order to protect the interests
of
the employer.
[177]
In
the current matter, the individual respondents, save perhaps for
Osmond, obtained very little of their knowledge and experience
in
conducting a FSP practice from ADX. After all, they were recruited
into ADX with practices in tow. They were employed as experienced
financial advisers to grow the business of ADX. In any event, any
skills and expertise the individual respondents may have accrued
in
the course of their employment with ADX, would accrue to them, and as
a general proposition, they would be entitled to deploy
the same in
new employment at any other FSP.
[98]
In
Automotive
Tooling Systems (Pty) Ltd v Wilkens and Others
[99]
the Court said:
‘
In my view, the
facts establish that the know-how for which the appellant seeks
protection is nothing other than skills in manufacturing
machines
albeit it that they are specialised skills. These skills have been
acquired by the first and second respondents in the
course of
developing their trade and do not belong to the employer - they do
not constitute a proprietary interest vesting in the
employer - but
accrue to the first and second respondents as part of their general
stock of skill and knowledge which they may
not be prevented from
exploiting. As such the appellant has no proprietary interest that
might legitimately be protected.’
[178] Based
on the above facts, I would consider it unreasonable to prevent the
individual respondents
from continuing to pursue their careers and
earning a living in the financial services industry. Allowing this
would still provide
them with the prospect of employment and deriving
an income from providing financial services to clients in the
financial services
industry, which is after all the industry that
they know and spent their careers in. I will therefore not consider
granting the
relief ADX seeks of interdicting the individual
respondents (save for Hill and Osmond) from being employed with any
competitor
in the financial services industry.
[179]
However,
and for the reasons already elaborated on in full in this judgment,
the aforesaid reservation in favour of the individual
respondents
cannot apply to their current employment at WA and / or any
association with Carmel. In short, considering what happened
in
casu
,
and now applying the same in the context of a weigh off, I venture to
suggest that it would substantially count against the individual
respondents remaining employed at WA and still reaping the benefits
of their unlawful conduct. Also, considering WA’s involvement
in this whole state of affairs, it should not be permitted that it
obtains any benefit from the continued employment of the individual
respondents. Considering this unlawful competition component that
exists
in
casu
,
the following
dictum
in
Masstores
(Pty) Ltd v Pick ‘n Pay Retailers (Pty) Ltd
[100]
is apposite:
‘…
It
is not the conduct itself that establishes unlawfulness, but its
harmful result. In the case of an interdict, as here, actual
loss need not necessarily be shown, only potential impending or
continuing harm. There is no general right not to be
caused pure
economic loss, but in unlawful competition cases, as this one
is, our courts have recognised that the loss may
lie in the
infringement of a right to goodwill or in the legal duty to respect
the right to goodwill. …
’
[180] I
am of the view that overall considered, the weigh off must favour
ADX, where it comes to the
continued employment of the individual
respondents with WA. The prejudicial consequences and risk to ADX if
the restraint is not
enforced by prohibiting the employment of the
individual respondents with WA, greatly outweighs any prejudicial
consequences to
the individual respondents if it is, especially
considering that the individual respondents can still pursue their
careers in the
financial services industry at any other employer not
associated with WA or Carmel.
[181] As
to the restraint area, this has not really been challenged by the
individual respondents.
The undisputed fact is that ADX does business
throughout the country. It must also be considered that insulating a
client base
of an employer against solicitation is not necessarily
area bound or area specific, and would apply to wherever clients are
found,
especially where the business is nationwide. There is
accordingly nothing unreasonable in the restraint area being
designated to
be the country wide area prescribed in the restraint of
trade.
[182]
Where
it comes to the restraint period, the individual respondents had the
onus to provide proper information or a factual basis
upon which the
restraint period would be considered to be unreasonable.
[101]
The individual respondents have failed to make out a proper case in
this regard. I am satisfied that a restraint period of 12 months
in
the financial services industry and environment, and considering the
seniority, the nature of position of the individual respondent,
and
the nature of their relationship with ADX’s clients, is
reasonable.
[102]
[183]
ADX
has no alternative remedy available to it in this instance. As said
in
Plumblink
supra
[103]
:
‘…
A
future damages claim based on breach of contract would be cold
comfort for business lost, in a market where as already said products
are readily interchangeable. …
’.
It is far more appropriate to simply completely insulate ADX from the
risk associated with the employment of the individual
respondents
with a direct and material competitor such as WA and / or Carmel, for
the restraint period, and so give ADX the opportunity
to bed down its
clients, and have the value of confidentiality of its information
diminish only through the lapse of time, and
not by way of unlawful
behaviour.
[104]
An interdict
is the only way this can be achieved, based on the following
dictum
in
Esquire
System Technology (Pty) Ltd t/a Esquire Technologies v Cronjé
and Another
:
[105]
‘
As I have stated
above, the alternative remedy of a damages claim is cold comfort to
an applicant that seeks to enforce a legitimate
restraint of trade
covenant. By the time a damages claim is heard, the horse had bolted
and the harm is done. That harm is very
difficult to repair. I am
satisfied that, where a restraint of trade is enforceable, the
alternative remedy of a damages claim
in due course is more apparent
than real …’
[184]
In
the end, I believe the following considerations as articulated in
Ball
supra
[106]
must equally apply
in
casu
:
‘
In my view,
quantitatively and qualitatively, the interest of the first
respondent surpassed that of the appellant. The fact that
the
appellant stated that she did not intend and did not use any of the
information in favour of or for the benefit of the
second
respondent is irrelevant in determining whether the restraint is
reasonable, or in determining whether the restraint had
been
breached. Furthermore, in my view, there was no other fact or aspect
of public policy, at the time when the restraint was
to be enforced,
which required that the restraint be rejected. In the
circumstances, I am satisfied that the court a quo correctly
concluded that the restraint was reasonable and enforceable and in
granting relief accordingly.’
[185] ADX
has thus satisfied all the other requirements necessary for the final
relief it seeks against
the individual respondents, to be granted. In
short, the weigh off favours ADX, because it faces real and extensive
prejudice if
relief is not granted, in the form of the loss of
business and the risk created to it by way of the individual
respondents’
continued employment and association with the
directly competing business of WA and / or Carmel to ADX’s
trade connections
(client base), goodwill and confidential
information. The restraint period is reasonable, and there is no
suitable alternative
remedy available.
Conclusion
[186] In
summary, and where it comes to a final interdict, ADX has
demonstrated the existence of a
clear right, in that it has a
legitimate and proper restraint of trade covenants and
confidentiality undertakings in place as against
the individual
respondents, susceptible to being enforced, where it comes to both
confidential information and trade connections.
ADX has also
established that the individual respondents are indeed infringing on
such protectable interests. The weighing off
of interests favours ADX
and there is no intervening issue of public interest. Finally, ADX
has demonstrated the existence of an
injury reasonably apprehended,
and has no proper alternative remedy available to it. It is entitled
to the relief it seeks.
[187] There
is finally the issue of the interim relief granted by Govender AJ in
her judgment of 14
December 2023, which is currently still in place.
Because final relief is now afforded in this judgment, the interim
relief afforded
by Govender AJ should be discharged and substituted
with the relief granted in the order in this judgment.
Costs
[188] This
then leaves only the issue of costs. This Court has a wide discretion
where it comes to
the issue of costs, considering the provisions of
section 162(1) of the LRA. It must of course be considered that ADX
was ultimately
successful, and that the current dispute is
principally a contract dispute, and not an LRA dispute where
ordinarily costs do not
follow the result. I also consider, in the
context of a costs award, that the respondents have been less than
forthright in this
case, acted unlawfully, and in essence always had
it in mind that he would target, whether directly or indirectly,
ADX’s
client base and goodwill in a concerted business hijack.
I also consider that ADX has suffered actual substantial damage in
the
form of loss of clients, goodwill, and business. In my view, and
considering what happened, the respondents sought to defend what
was
incapable of defending. Fairness dictates, in the circumstances, that
the ADX must be entitled to its costs, which includes
the costs of
two counsel.
[189] For
all the reasons as set out above, I make the following order:
Order
1. The
interim relief granted by Govender AJ on 14 December 2023 is
discharged and substituted with
the relief granted in this order.
2. The
first to eighth respondents are interdicted and restrained, for a
period of twelve months, from
1 October 2023 until 30 September 2024,
and anywhere in the Republic of South Africa, whether as a
proprietor, partner, director,
shareholder, employee, consultant,
contractor, financier, agent, representative, assistant or member of,
or holding any other capacity
whatsoever in relation to any person
and whether for its direct or indirect benefit or for reward or
otherwise, from, directly
or indirectly, being interested or engaged
in, concerned with, or employed by the eleventh and/or twelfth and/or
thirteenth and/or
fourteenth respondents.
3. The
first to eighth respondents are interdicted and restrained, for a
period of twelve months, from
1 October 2023 until 30 September 2024,
and anywhere in the Republic of South Africa, from:
3.1 encouraging,
enticing, inciting, persuading or inducing any employee of the first
applicant to
terminate his/her employment with the first applicant;
3.2 furnishing
any information or advice to any employee employed by the first
applicant or to any
prospective employer of such employee, or use any
other means which are directly or indirectly designed, or in the
ordinary course
of events calculated, to result in any such employee
terminating his/her employment with the first applicant; and / or
becoming
employed by or directly or indirectly in anyway interested
in or associated with any other business, trade, firm, undertaking or
concern.
4 The
first to eighth respondents are interdicted and restrained, for a
period of twelve months, from
1 October 2023 until 30 September 2024,
and anywhere in the Republic of South Africa, from:
4.1 persuading,
inducing, encouraging or procuring to terminate his/her/its
association or relationship
with the applicants and/or to divest any
investments made with or through the applicants, any Prescribed
Client/Customer, being
any person –
4.1.1 who
is or was a client/customer whom the first to eighth respondents
introduced to the applicants;
4.1.2 who
is or was a client/customer of the applicants during any part of the
first to eighth respondents’
employment period;
4.1.3 who
is or was a prospective client/customer of the applicants as of 30
September 2023 whom the
first to eighth respondents approached to do
business with the applicants within a period of one year preceding 30
September 2023;
and
4.1.4 to
whom any financial products as contemplated in the FAIS Act and/or
any product of whatsoever
nature dealt with or offered by the
applicants to its clients/customers, including without limitation,
the Authorised Product Range
(those financial product ranges for
which the first applicant was appointed and mandated by the second
applicant, a registered
financial services provider, to render
services on behalf of the second applicant, as stipulated in the
Mandated Representative
Agreement concluded between the first
applicant and the second applicant in terms of which the first
applicant was appointed by
the second applicant as its juristic
representative (as defined in the FAIS Act) and the first applicant
was mandated to render
financial services on behalf of the second
applicant in respect of the Authorised Product Ranges in the Republic
of South Africa,
which may be amended from time to time), while the
first to eighth respondents were employed by the first applicant or
at 30 September
2023 (“Prescribed Goods"), were supplied,
and/or Prescribed Services were rendered by the applicants within the
period
of one year preceding 30 September 2023.
5 The
first to eighth respondents are interdicted and restrained, for a
period of twelve months, from
1 October 2023 until 30 September 2024,
and anywhere in the Republic of South Africa, from:
5.1 soliciting
orders from Prescribed Clients/Customers for any Prescribed Services;
5.2 canvassing
business in respect of any Prescribed Services from Prescribed
Clients/Customers; and/or
5.3 rendering
any Prescribed Services to any Prescribed Clients/Customers.
6 The
first to eighth respondents are interdicted from using for their own
benefit, or for the benefit
of any other person, or divulging or
communicating to any person any of the applicants’ trade
secrets and confidential information
which they have received or
obtained in relation to:
6.1 the
applicants' affairs and/or any Prescribed Clients/Customers and/or
Prescribed Services;
6.2 any
know-how, process or invention, any marketing or business technique
which is carried on or
used by the applicants, and secret and
confidential information including, but not limited to information
pertaining to the applicants'
clients/customers, the applicant's
know-how, trade secrets, artistic works, designs, drawings, sketches,
plans, technical know-how
and data, systems, software, processes,
methods, client/customer lists and marketing or financial
information; and any programme
or programming developed by or for the
applicants, contracts and personal introductions at all levels, and
inventions, patents,
trademarks and copyrights.
7 The
ninth respondent is interdicted and restrained, for a period of
twelve months, from 1 September
2023 until 31 August 2024, and
anywhere in the Republic of South Africa, from:
7.1 encouraging,
enticing, inciting, persuading or inducing any employee of the first
applicant to
terminate his/her employment with the first applicant;
7.2 furnishing
any information or advice to any employee employed by the first
applicant or to any
prospective employer of such employee, or use any
other means which are directly or indirectly designed, or in the
ordinary course
of events calculated, to result in any such employee
terminating his/her employment with the first applicant; and / or
becoming
employed by or directly or indirectly in anyway interested
in or associated with any other business, trade, firm, undertaking or
concern.
8 The
ninth respondent is interdicted and restrained, for a period of
twelve months, from 1 September
2023 until 31 August 2024, and
anywhere in the Republic of South Africa, from:
8.1 persuading,
inducing, encouraging or procuring to terminate his/her/its
association or relationship
with the applicants and/or to divest any
investments made with or through the applicants, any Prescribed
Client/Customer.
8.2 soliciting
(whether by initiating or responding to) orders from Prescribed
Clients/Customers for
any Prescribed Services;
8.3 canvassing
business (whether directly or indirectly) in respect of any
Prescribed Services from
Prescribed Clients/Customers, including any
Prescribed Clients/Customers who have already purported to place
their business with
any of the respondents; and/or
8.4 rendering
any Prescribed Services to any Prescribed Clients/Customers,
including any Prescribed
Clients/Customers who have already purported
to place their business with any of the respondents.
9 The
ninth respondent is interdicted from using for his own benefit, or
for the benefit of any other
person, or divulging or communicating to
any person any of the applicants’ trade secrets and
confidential information which
he has received or obtained in
relation to:
9.1 the
applicants' affairs and/or any Prescribed Clients/Customers and/or
Prescribed Services;
9.2 any
know-how, process or invention, any marketing or business technique
which is carried on or
used by the applicants, and secret and
confidential information including, but not limited to information
pertaining to the applicants'
clients/customers, the applicant's
know-how, trade secrets, artistic works, designs, drawings, sketches,
plans, technical know-how
and data, systems, software, processes,
methods, client/customer lists and marketing or financial
information; and any programme
or programming developed by or for the
applicants, contracts and personal introductions at all levels, and
inventions, patents,
trademarks and copyrights.
10 The
tenth respondent is interdicted and restrained from either using or
directly or indirectly divulging
or disclosing to others any of the
trade secrets and/or confidential information of the first applicant,
the second applicant and
Old Mutual South Africa Ltd (defined as “the
group”), which shall include any written instructions,
drawings, financial
models and spread sheets, notes, memoranda,
knowledge of the group's customers, clients, suppliers and other
business associates,
the financial details of the group's
relationship with its business associates, the financial details
(including credit and discount
terms) in relation to the group’s
clients, the names of prospective clients of the group and their
requirements, the details
of the group's financial structure and
operating results, details of the remuneration paid by the group to
its various employees
and their duties, and / or other matters which
relate to the business of the group and in respect of which
information is not readily
available in the ordinary course of
business of a competitor of the group.
11 The
respondents are ordered to pay the applicants’ costs, jointly
and severally, the one paying
the other to be absolved, which costs
shall include the costs of two counsel.
S. Snyman
Acting Judge of the
Labour Court of South Africa
Appearances:
For the Applicants:
Advocate C
Whitcutt SC together with Advocate J
Griffiths
Instructed
by:
Webber Wentzel Attorneys
For the
Respondents: Advocate A
Redding SC together with Advocate L Hollander
Instructed
by:
Schindlers Attorneys
[1]
There is an application for leave to appeal and an application in
terms of section 18(3) of the Superior Courts Act pending against
this judgment, which has no relevance to the current matter.
[2]
Admitted
facts include facts that, though not formally admitted, simply
cannot be denied – see
Gbenga-Oluwatoye
v Reckitt Benckiser SA (Pty) Ltd and Another
(2016)
37 ILJ 902 (LAC) at para 16.
[3]
Act
37
of 2002.
[4]
The
relevant provisions are found in clauses 20 and 21 of the employment
agreements of Roux, Da Costa and Van Huyssteen, clauses
22 and 23 of
the employment agreement of Maass, clauses 24 and 25 of the
employment agreement of Hill, and clauses 2.3 to 2.12
in the
restraint of trade agreements and clause 25 of the employment
agreements, of Van den Berg, Field, Wilson and Woodhead.
[5]
This
is found in clause 7 of the employment agreements and clause 3 of
the restraint agreements.
[6]
None of the individual respondents are bad leavers.
[7]
The rights of ADX relating to the enforcement of the restraints of
trade and confidentiality undertakings were reserved in this
correspondence.
[8]
The
NAS device is referred to earlier in this judgment and is in essence
a local server situate in the Gqeberha offices containing,
inter
alia
,
the entire client database of ADX.
[9]
(2020)
41 ILJ 1661 (LC) at para 56.
[10]
Magna
Alloys and Research (SA) (Pty) Ltd v Ellis
1984
(4) SA 874 (A)
at
891B-C;
Reddy
v Siemens Telecommunications
(2007)
28 ILJ 317 (SCA)
at
paras 14;
Labournet
(Pty) Ltd v Jankielsohn and Another
(2017)
38 ILJ 1302 (LAC) at para 39;
Ball
v Bambalela Bolts (Pty) Ltd and Another
(2013)
34 ILJ 2821 (LAC) at para 13;
Esquire
System Technology (Pty) Ltd t/a Esquire Technologies v Cronjé
and Another
(2011) 32 ILJ 601 (LC) at para 26;
SPP
Pumps (SA) (Pty) Ltd v Stoop and Another
(2015)
36 ILJ 1134 (LC) at para 26;
Shoprite
Checkers (Pty) Ltd v Jordaan and Another
(2013) 34 ILJ 2105 (LC) at para 20.
[11]
Reddy
(supra)
at
paras 15 – 16. See also
Fidelity
Guards Holdings (Pty) Ltd t/a Fidelity Guards v Pearmain
2001
(2) SA 853
(SE) where the Court said:
‘
The
Constitution does not take such a meddlesome interest in the private
affairs of individuals that it would seek, as a matter
of policy, to
protect them against their own foolhardy or rash decisions
’
.
[12]
[1993] ZASCA 61
;
1993
(3) SA 742
(A) at 767G-H.
[13]
Jonsson
Workwear (Pty) Ltd v Williamson and Another
(2014) 35 ILJ 712 (LC)
at para 44;
Medtronic
(Africa) (Pty) Ltd v Van Wyk
(2016)
37 ILJ 1165 (LC)
at
para 15;
Esquire
(
supra
)
at paras 50 – 51.
[14]
Labournet
(
supra
)
at para 42;
Jonsson
(supra
)
a
t
para 44;
Vox
Telecommunications (Pty) Ltd v Steyn and Another
(2016)
37 ILJ 1255 (LC) at paras 28 – 29;
Shoprite
Checkers
(
supra
)
at paras 23 – 24;
Benchmark
Signs Incorporated v Muller and another
[2016] JOL 36587
(LC) at para 15.
[15]
(2013)
34 ILJ 2821 (LAC) at para 17. See also
Labournet
(
supra
)
at para 40.
[16]
Dickinson
Holdings Group (Pty) Ltd and Others v Du Plessis and Another
(2008)
29
ILJ
1665 (N)
at
para 32;
Basson
(supra)
at
769 G – H;
Bonnet
and Another v Schofield
1989
(2) SA 156
(D) at 160B-C
;
Hirt
and Carter (Pty) Ltd v Mansfield and Another
(2008)
29 ILJ 1075 (D) at para 37;
Esquire
(
supra
)
at para 27;
Sibex
Engineering Services (Pty) Ltd v Van Wyk and Another
1991
(2) SA 482
(T)
at
502E-F;
FMW
Admin Services CC v Stander and Others
(2015) 36 ILJ 1051 (LC) at para 36;
Vox
(
supra
)
at para 30.
[17]
(2017)
38 ILJ 1302 (LAC) at para 41.
[18]
See
Dickinson
(supra) at
para
33;
Jonsson
(
supra
)
at paras 46 – 49;
David
Crouch Marketing CC v Du Plessis
(2009)
30 ILJ 1828 (LC
)
at para 21;
Esquire
(supra)
at
para 29;
Experian
SA (Pty) Ltd v Haynes and Another
(2013) 34 ILJ 529 (GSJ) at para 19.
[19]
See
Rawlins
and another v Caravantruck (Pty) Ltd
[1992] ZASCA 204
;
1993
(1) SA 537
(A) at 541D-F;
FMW
(
supra
)
at paras 46 – 48;
Esquire
(
supra
)
at paras 31 – 32;
Experian
(
supra
)
at para 18;
LR
Plastics (Pty) Ltd v Pelser
[2006]
JOL 17855
(D) at para 26.
[20]
Caravantruck
(
supra
)
at 541F-I;
FMW
(
supra
)
at para 45;
Aquatan
(Pty) Ltd v Jansen van Vuuren and Another
(2017) 38 ILJ 2730 (LC) at para 24.
[21]
As said in
Avis
Southern Africa (Pty) Limited and another v Porteous and another
2023
JDR 3937 (GJ) at para 44: ‘…
This
accords with the doctrinal principles that underpin restraints of
trade and which hold that the protection of the proprietary
interest
of the employer’s business in its trade secrets and trade
connections contribute to the goodwill of the business
…
’.
[22]
1972 (4)
SA 608 (W)
621A - B
[23]
2010
JDR 1413 (GSJ).
[24]
Id at para 38. See also
Reeves
and Another v Marfield Insurance Brokers CC and Another
[1996] ZASCA 39
;
1996 (3) SA 766
(A) at 772F-G.
[25]
2011
JDR 1162 (SCA) at para 12. See also
Botha
and Another v Carapax Shadeports (Pty) Ltd
[1991] ZASCA 134
;
1992
(1) SA 202
(A) at 212B-D, where it was held: ‘…
The
seller of a business who does not put himself under a restraint of
trade may not solicit old customers of the business, but he
is
free to enter into trade in competition with the purchaser of the
business (A Becker & Co (Pty) Ltd v Becker and Others
1981
(3) SA 406
(A)
at
414H and 417C-419A). Such competition will usually be detrimental to
the business. Conversely, an undertaking by the seller
not to enter
into competition will enhance the value of the business. The same
considerations apply to the case of an employee
of the business.
It follows logically, therefore, that a restraint of trade against a
seller or an employee should be regarded
as a part of the goodwill
of the business. …
’.
[26]
(2015) 36 ILJ 947 (LAC) at para 24.
[27]
Unreported case number J 1135 / 23 dated 20 September 2023 at para
50.
[28]
See
Dickinson
(
supra
)
at para 38;
Stewart
Wrightson (Pty) Ltd v Minnitt
1979
(3) SA 399
(C)
at
404B-C;
Random
Logic (Pty) Ltd t/a Nashua
,
Cape
Town v Dempster
(2009) 30 ILJ 1762 (C) at para 32;
Experian
(
supra
)
at para 43;
Jonsson
(supra)
at
para 51.
[29]
See
David
Crouch
(
supra
)
at para 21;
Plumblink SA
(Pty) Ltd v Legodi and Another
(2020)
41 ILJ 1743 (LC) at para 30.
[30]
In
restraints, there exists what can be described as a dual onus.
First, the onus is on the applicant party to prove the existence
of
the restraint, that the restraint binds the respondent party, and
that the restraint has been breached. Secondly, and once
the
aforesaid is established, the respondent party has the onus to show
that the enforcement of a restraint of trade would be
unreasonable –
see
Magna
Alloys and Research (SA) (Pty) Ltd v Ellis
[1984] ZASCA 116
;
1984
(4) SA 874
(A) at 875H-I;
Dickinson
(
supra
)
at para 89;
Bridgestone
Firestone Maxiprest Ltd v Taylor
[2003]
1 All SA 299
(N) at 302J-303B;
Jonsson
(
supra
)
at para 8, and all the authorities cited in that paragraph of that
judgment.
[31]
[1984] ZASCA 51
;
1984
(3) SA 623
(A) at 634E 635C. These principles are, in sum, that
the facts as stated by the respondent party together with the
admitted
or facts that are not denied in the applicant party’s
founding affidavit constitute the factual basis for making a
determination,
unless the dispute of fact is not real or genuine or
the denials in the respondent's version are bald or not
creditworthy, or
the respondent's version raises such obviously
fictitious disputes of fact, or is palpably implausible, or
far-fetched or so
clearly untenable, that the court is justified in
rejecting that version on the basis that it obviously stands to be
rejected.
[32]
In
Jonsson
(
supra
)
at para 9, it is said: ‘…
no
matter where the onus may lie, this does not change the principle
and approach on how factual disputes in motion proceedings
should be
determined, and in particular, how this restraint application should
be determined. …
’
[33]
Id
at para 14. The Court in
Ball
was
relying on the following dictum in
Reddy
(supra)
at
para 14: ‘…
.
If the facts disclosed in the affidavits, … disclose that the
restraint is reasonable, then Siemens must succeed: if,
on the other
hand, those facts disclose that the restraint is unreasonable then
Reddy must succeed. What that calls for is a
value judgment, rather
than a determination of what facts have been proved ….
’
.
See also
Labournet
(
supra
)
at para 40;
Vumatel
(Pty) Ltd v Majra and Others
(2018)
39 ILJ 2771 (LC) at para 29;
New
Justfun Group (Pty) Ltd v Turner and Others
(2018) 39 ILJ 2721 (LC) at para 10.
[34]
[2004] ZACC 20
;
2005
(2) SA 359
(CC)
at
para 53.
[35]
[2015]
ZALCCT 50 (12 August 2015) at para 8.
[36]
AJ
Charnaud
(
supra
)
at para 35.
[37]
(2015)
36 ILJ 1134 (LC)
at para 37.
[38]
Compare
Medtronic
(Africa) (Pty) Ltd v Kleynhans and Another
(2016)
37 ILJ 1154 (LC)
at para 46.
[39]
In
Hirt
and Carter
(
supra
)
at para 37 it was held: ‘…
.
Customer goodwill and trade connections have long been regarded as
proprietary interests worthy of protection
’.
[40]
[1992] ZASCA 204
;
1993
(1) SA 537
(A) at 541D-I. See also
Esquire
(
supra
)
at
para
27;
Continuous
Oxygen Suppliers (Pty) Ltd t/a Vital Aire v Meintjes and Another
(2012)
33 ILJ 629 (LC) at paras 34 – 36;
FMW
(
supra
)
at para 45.
[41]
1995
(2) SA 579
(W) at 612–I.
[42]
Id
at 613D-F.
[43]
This
does not apply to Osmond, who did not sign a restraint.
[44]
See
Brenthurst
(
supra
)
at para 48.
[45]
This
is issue is specifically dealt with later in this judgment, where I
deal with the quantitative and qualitative weigh off.
[46]
2019
(3) SA 117
(SCA) at para 63.
[47]
[2006] ZACC 6
;
2007
(6) SA 350
(CC) at para 34.
[48]
1993
(2) SA 726 (T).
[49]
Id
at 731G-H.
[50]
2021
JDR 3004 (GP).
[51]
Id
at paras 24 – 26. Also compare
H.V.
Test (Pty) Ltd v Lead HV (Pty) Ltd
2021 JDR 2880 (GJ) and
BKB
Limited v Collins
2011
JDR 0501 (ECG) as other comparable examples.
[52]
2017
JDR 0244 (GP).
[53]
Id
at para 27.
[54]
Id
at para 42.
[55]
(J125/2023)
[2023] ZALCJHB 42 (7 March 2023).
[56]
Id
at paras 18 – 19.
[57]
Compare
IIR
South Africa BV (Incorporated in the Netherlands) t/a Institute for
International Research v
Tarita
and
Others
2004 (4) SA 156
(W) at 171A-C, there it was said: ‘…
If
the third respondent, despite acting bona fide, put together
conferences with the assistance of the first respondent
who was
restrained from giving such assistance, then I consider that the
third respondent was competing unfairly with the applicant,
who
would effectively be deprived of the benefit of its bargain with the
first respondent if I permit the third respondent to
put on
conferences put together in breach of the first respondent's
restraint agreement. My view is reinforced by my finding
that it
is clear that the third respondent was aware of the restraint
agreement and ran the risk that it would be enforceable
in the
circumstances and would be enforced …
’.
[58]
These
employees include at Stansbury, Alison Roux, Brenda Moore, Sharon
Norton, Yvette Redcliffe, Jacqueline Meyer, and David
Young, all of
whom terminated their employment with ADX at the same time as the FA
respondents.
[59]
(2007)
28 ILJ 317 (SCA) at para 20.
[60]
In
Caravantruck
(
supra
)
at 541D-I, the Court held: ‘…
Heydon
The Restraint of Trade Doctrine (1971) at 108, quoting an American
case, says that the ''customer contact' depends on the
notion that –
''the employee, by contact with the customer, gets the customer so
strongly attached to him that when the
employee quits and joins a
rival he automatically carries the customer with him in his pocket'
…
’.
[61]
(2016)
37 ILJ 1154 (LC)
at
para 40. See also
Van
Wyk
(
supra
)
at para 34
.
[62]
This
relief does not apply to Osmond.
[63]
This
relief does not apply to Osmond and Hill.
[64]
See
SPP
Pumps
(
supra
)
at para 30;
Continuous
Oxygen (supra)
at
para 42;
Van
Wyk
(
supra
)
at para 30;
Vox
(
supra
)
at para 31.
[65]
2008
(6) SA 229
(D) at para 17. See also
Waco
Africa (Pty) Ltd t/a Form-Scaff v Sack and Others
(2020)
41 ILJ 1771 (LC) at paras 35 and 37;
Van
Wyk
(
supra
)
at para 30;
Kleynhans
(
supra
)
at para 40;
New
Justfun
(supra)
at para 12,
[66]
See
Ball
(
supra
)
at para 22;
Discovery
Life Limited v De Meyer
2018 JDR 2035 (GJ) at para 20.
[67]
2004
(4) SA 156
(W) at 166I-167A. See also
Hard
Hat Equipment Hire Pty Ltd v Mclean and Another
(15214/2019) [2019] ZAGPJHC 215 (7 June 2019) at paras 31 –
32.
[68]
Compare
NBC
Holdings (Pty) Ltd v Chaane
2021
JDR 3111 (GJ) at para
60.
[69]
(2013)
34 ILJ 529 (GSJ) at
para
52.
[70]
Id
at para 60.
[71]
Compare, for example, the judgment in
Roxsure
Insurance Brokers (Pty) Ltd v Salomon
2015
JDR 0806 (GJ) at para 26, where a Court refused to enforce a
restraint where it was shown that: ‘…
There
is no allegation that Salomon has used the applicant's customer
connections or attempted to lure them from the applicant.
To the
contrary,
she
has refused to accept customers of the applicant
.,,,
’
(emphasis added).
[72]
(2023)
44 ILJ 854 (LC) at para 125.
[73]
See
Margalit
v Standard Bank of South Africa Ltd and Another
2013
(2) SA 466
(SCA) at para 21.
[74]
[2006] ZASCA 112
;
2007
(3) SA 266
(SCA) at para 163.
[75]
[1998] ZASCA 87
;
1999
(1) SA 232
(SCA) at 238C-E.
[76]
2011
(3) SA 140
(SCA) at paras 14 – 15.
[77]
See
3M
SA (Pty) Ltd v SA Commercial Catering and Allied Workers Union and
Others
(2001) 22 ILJ 1092 (LAC)
at para 9.
[78]
Act
75 of 1997.
[79]
See
Singh
v Adam
(2006) 27 ILJ 385 (LC) at paras 22 – 32.
[80]
[2008] ZASCA 40
;
2008
(4) SA 325
(SCA) at para 51.
[81]
2014
(4) SA 124
(CC) at para 43.
[82]
Id
at para 45. See also
Kingshaven
Homeowners' Association v Botha and Others
2023 (4) SA 187
(WCC) at para 52.
[83]
1973
(2) SA 805 (C).
[84]
Id
at 810A-811A.
[85]
[1996] ZASCA 39
;
1996
(3) SA 766
(A) at 772F-G.
[86]
[2010]
JOL 26270
(GSJ) at para 48
.
See also
Benchmark
Signs Benchmark Signs Incorporated v Muller and another
[2016]
JOL 36587
(LC) at para 15.
[87]
(
supra)
at para 39. See also
Wagner
(
supra
)
at para 13.
[88]
Bonfiglioli
(
supra
)
at para 24.
[89]
(2023)
44 ILJ 785 (LC) at para 59.
[90]
Id
at para 60. Similar sentiments were echoed in
BHT
Water Treatment (Pty) Ltd v Leslie and Another
1993
(1) SA 47
(W)
at
57J-H where the Court said: ‘…
the
applicant should not have to content itself with crossing its
fingers and hoping that the first respondent would act honourably
or
abide by the undertakings he has given....
’
,
See also
Ball
(
supra
)
at para 22;
Shoprite
Checkers (supra)
at para 43;
Vox
(supra)
at
para 32;
New
Justfun
(
supra
)
at para 21;
Vumatel
(
supra
)
at para 40;
Van
Wyk
(
supra
)
at
para 34.
[91]
Id
at para 61.
[92]
These
principles are that: (1) Employees must be measured against the same
standards (like for like comparison); (2) Did the chairperson
of the
disciplinary enquiry
conscientiously
and honestly determine the misconduct;
(3)
The decision by the employer not to dismiss other employees involved
in the same misconduct must not be capricious, or induced
by
improper motives or by a discriminating management policy (in other
words this conduct must be
bona
fide
);
and (4) A value judgment must always be exercised: – see
SA
Commercial Catering and Allied Workers Union and Others v Irvin and
Johnson Ltd
(1999)
20 ILJ 2302 (LAC)
at
para 29;
Bidserv
Industrial Products (Pty) Ltd v Commission for Conciliation,
Mediation and Arbitration and Others
(2017)
38 ILJ 860 (LAC) at para 31;
Grindrod
Logistics (Pty) Ltd v SA Transport and Allied Workers Union on
behalf of Kgwele and Others
(2018) 39 ILJ 144 (LAC) at para 47;
Botsane
v Anglo Platinum Mine (Rustenburg Section)
(2014)
35 ILJ 2406 (LAC) at para 39;
SRV
Mill Services (Pty) Ltd v Commission for Conciliation, Mediation and
Arbitration and Others
(2004)
25 ILJ 135 (LC) at para 23.
[93]
(2020)
41 ILJ 1743 (LC) at para 45.
[94]
For
example, shorter restraints and properly limited geographical area
(if applicable) would mitigate in favour of enforcement,
whilst an
unduly long and broad restraint would mitigate against it –
see
Labournet
(
supra
)
at para 43;
Continuous
Oxygen
(
supra
)
at para 47.
[95]
Automotive
Tooling Systems (Pty) Ltd v Wilkens and Others
(2007) 28 ILJ 145 (SCA) at para 8;
Labournet
(
supra
)
at paras 43 - 44;
Jonsson
(supra)
at
para 51.
[96]
In
Vumatel
(
supra)
at para 39, it was held: ‘…
The
nature of the industry is also an important consideration. The more
specialized the industry is, the more the weigh off will
favour the
employer, as it limits the scope of the restraint and leaves much
more avenues open to the employee to procure gainful
employment in
other industries. …
’.
[97]
Labournet
(
supra
)
at para 43;
Continuous
Oxygen
(
supra
)
at para 47.
[98]
In
Shoprite
Checkers
(
supra
)
at para
82,
it was held: ‘
There
is no doubt that as a result of the position he held in Shoprite,
Johnson learned about the application of marketing and
merchandising
techniques, in which he was trained and of which he had experience,
in the e-commerce environment. The skills he
acquired no doubt would
make him an attractive candidate for other retail operations looking
for someone with prior e-commerce
marketing experience. However it
is trite that Shoprite has no proprietary claim to prevent him using
those skills in the employment
of a competitor, as they are
attributes which inhere to him, even though he acquired them through
working for it …
’.
See also
Dot
Activ
(
supra
)
at para 72.
[99]
(2007)
28 ILJ 145 (SCA) at para 20.
[100]
2017
(1) SA 613
(CC) at para 30.
[101]
Plumblink
(
supra
)
at para 50.
[102]
Plumblink
(
supra
)
at 47;
Waco
Africa (Pty) Ltd t/a Form-Scaff v Sack and Others
(2020)
41 ILJ 1771 (LC) at para 44.
[103]
(2020)
41 ILJ 1743 (LC) at para 49.
[104]
Vumatel
(
supra
)
at para 38.
[105]
(2011)
32 ILJ 601 (LC)
at para 40.
[106]
Id at para 25.